R3 Releases New Research Report Proving Public Blockchain Is Not a Solution for Financial Institutions

Tim Swanson, head of market research at R3, published a research report this month arguing that attempts to use the bitcoin blockchain to issue digital assets using “watermarked tokens” such as colored coins and other metadata solutions are unfeasible.

The report, titled “Watermarked Tokens and the Anonymity Controversy on Public Blockchains,” delves into the problems with blockchains for issuing digital assets such as securities, aiming to show that it is impossible for public blockchains like the Bitcoin blockchain to be both censorship-free and legally authoritative in issuing off-chain assets.

The report points out that some startups are beginning to try to provide "watermarking" services in order to issue, track and transfer digital assets, which is known as "blockchain 2.0". It then goes on to say:

“In reality, Blockchain 2.0 cannot be used as a solution for fiscal settlement, issuing securities, or other off-chain property rights because of the censorship-resistant nature of blockchain.”

But the developers of colored coins and those who follow them point out that blockchain technology is still evolving and that security and compliance are priorities.

Flavien Charlon, CEO of Coinprism, which created OpenAssets and Openchain, told IBTimes in an email: “Back in the early days of blockchain technology (late 2013-early 2014), there were several projects like Colored Coins, Counterparty, etc. that were exploring the concept of watermarking.

“Coinprism actually pioneered the concept of implementing colored coins (OpenAssets). In 2014, Open Assets slowly gained some support from the outside world, and then Nasdaq announced that they were also experimenting with Open Assets.

“As the financial industry became more and more interested in blockchain technology, we started talking to some financial institutions and enterprises about how they were using blockchain, and we realized that watermarking systems were often not suitable for what they were doing.”

“That’s why we started building Openchain in early 2015. Openchain not only solves the problems that the Watermarking Protocol solves, but by modifying the Bitcoin blockchain, we can achieve greater scale and handle compliance issues in a better way.”

“Coinprism and R3 are not the only two companies in the industry that have realized this problem. In 2015, the blockchain industry ushered in a remarkable turning point, and more and more companies began to join the army of using blockchain and tried to establish permissioned ledgers.”

ChromaWay, a company that develops colored coins, also commented on the research report, saying that there is no need to blame private blockchains for security issues, and that R3 is also doing research on private blockchains. Henrik Hjelte, CEO of ChromaWay, told IBTimes:

"We need to do more research on security, authorized systems can also be attacked, and history shows that banks and bank employees sometimes commit fraud."

“Chromaway has been focused on the security of colored coins since Alex Mizrahi first proposed the concept in 2012, and we are taking the same security-focused approach to developing our new products and services to companies.”

Amos Meiri, founder of Israeli blockchain startup Colu, told IBTimes: “Colored coins and the Bitcoin protocol are not finalized yet and continue to evolve and change. It is inappropriate to prematurely attack a complex technology and use a white paper written many years ago to disprove it. Especially when a good alternative solution has not yet emerged.”

“You can’t lump all ‘metadata’ solutions under the same umbrella. Colu recently released a new protocol that solves some technical issues, and we’re constantly improving the technology every day.”

“Any technology that is censorship-resistant and decentralized is likely to be criticized by financial institutions, so the biggest question is not whether the technology can solve the problem, but whether financial institutions want their problem to be solved.”

“There is no “good” way or “bad” way to do this technology. As long as we keep the two fundamental principles of this technology (open source and decentralization), we can continue to improve Bitcoin technology and create specific solutions for specific use cases. For example, in some cases, a distributed network is better, and in other cases it is not. I am against the final conclusion of this complex technology.”

“The study ignores the fact that dozens of Bitcoin companies are currently using OP_RETURN and that Bitcoin transaction volume is steadily increasing. The study also ignores the fact that many of the companies that are developing blockchain solutions for financial institutions are building their solutions on Bitcoin technology to enable future interoperability, an approach that may address many of the issues raised in the study.”

Original article: http://www.ibtimes.co.uk/r3s-tim-swanson-examines-watermarked-tokens-bitcoin-blockchain-1529410
By Ian Allison
Translator: printemps
Editor: printemps
Source (translation): Babbitt Information