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An experiment

An experiment

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I said earlier that I have a theory that you can replace the term “distributed ledgers” with “shared Excel sheets” in about 90 percent of talk about blockchain and finance. I wasn’t joking.

“A shared Excel spreadsheet is a record of transactions or other data which exists across multiple distinct entities in a network. The spreadsheet can be wholly replicated across participants, or segments can be partially replicated across a subset of participants. In either case, the integrity of the data is ensured in order to allow each entity to rely on its veracity and to know that data they are entitled to view is consistent with that viewed by others entitled to view the same data. This makes the shared Excel spreadsheet a common, authoritative prime record — a single source of truth — to which multiple entities can refer and with which they can securely interact.”

That’s from a certain blockchain paper. You could tweak the language to make it a little more accurate – “password-protected Excel spreadsheets whose earlier entries cannot be edited” or some such, but the point stands. The reason it stands is because it highlights a major issue with blockchain technologies when it comes to finance — what problem are you trying to solve here?

Centralized databases have existed for decades. Blockchain might be modestly more efficient, but the notion that it’s completely immutable and can never be abused seems open to questioning.

Here’s Christopher Natoli and Vincent Gramoli as written up by The Register:

“The problem: if everyone in a consortium trusts each other, they don’t need blockchains to protect themselves; if they don’t, current blockchain protocols have a flaw that allows a bad actor to game the system.”

 

 

Big data, finance and inequality

Big data, finance and inequality

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… Financial companies have the option of using data-guzzling technologies that make the observation of shopping habits look downright primitive. A plethora of information gathered from social media, digital data brokers and online trails can be used to mathematically determine the creditworthiness of individuals, or to market products specifically targeted to them.

The degree to which such algorithms are utilised by mainstream banks and credit card companies is unclear, as are their inputs, calculations and the resulting scores. While many types of data-driven algorithms have been criticised for opacity and intrusiveness, the use of digital scorecards in finance raises additional issues of fairness. Using such information to make predictions about borrowers can, critics say, become self-fulfilling, hardening the lines between the wealthy and poor by denying credit to those who are already associated with not having access to it.

“You can get in a death spiral simply by making one wrong move, when algorithms amplify a bad data point and cause cascading effects,” says Frank Pasquale, a professor of law at University of Maryland and author of a book on algorithms called The Black Box Society.

I’ve said before that I am incredibly proud of this Financial Times piece exploring the impact of big data on finance and equality. Researching this kind of topic is challenging because details on the use of big data remain murky – even more so when it comes to banks and financial companies. For that reason, much of the discussion remains theoretical, although it’s hard not to believe that this is the direction we are heading when you read that Google – a company notorious for using big data to personalise ads and search engine results in the name of advertising dollars- is now trialling money transfers. The British bank Barclays has reportedly also begun selling aggregated customer data to third-party companies.

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What’s in a name? How peer-to-peer became marketplace lending

What’s in a name? How peer-to-peer became marketplace lending

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I’ve written repeatedly about how peer-to-peer lending – the cuddly industry that began with the aim of disintermediating big banks by directly connecting individual borrowers with lenders – has been co-opted by the very industry it once set out to disrupt. As the industry grew and became more entwined with existing financial infrastructure, P2P lenders made a conscious decision to move away from the outdated “peer-to-peer” name.

Ever wonder how that happened? Here’s the story.

The future of the US peer-to-peer lending industry was decided in a luxurious San Francisco hotel on a spring evening last year.

On the sidelines of an alternative-lending conference, the heads of some of the biggest companies in the “P2P” space met privately to discuss rebranding the sector.

Eyeing the success of Uber and Airbnb — tech groups that have created digital marketplaces for car rides and rooms — they agreed to drop the peer-to-peer name in favour of “marketplace lending”.

In investor materials released over the following months by Lending Club, the biggest US P2P lender, as it prepared for its $5bn initial public offering, the phrase “peer-to-peer” did not appear once.

Democratising finance: P2P lenders rebrand and evolve

Here’s looking at you Lending Club

Here’s looking at you Lending Club

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Two years ago I took an interest in an up-and-coming fintech company called Lending Club.

Today they listed on the New York Stock Exchange, achieving an astounding valuation of $8.9bn in the process.

Here are a few stories that illustrate how we got from San Francisco start-up to NYSE listing.

The New York Stock Exchange on Lending Club listing day
The New York Stock Exchange on Lending Club listing day

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Chasing our tails

Chasing our tails

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Or, the time I talked to a Belgian former call center worker who turned herself into an actual currency trading guru.

This story is about “social trading,’  which ranges from run-of-the-mill sentiment on Twitter to ‘copy-trading’ strategies that see individual investors following ‘gurus’ on eToro or imitating the investment strategies of hedge funds.

“Twitter is great. I like it almost as much as I like Dell,” Carl Icahn, the activist investor, exclaimed when he made his debut on the social media platform last year. He now counts 190,000 followers who hang on his every tweet.

In finance, as in life, imitation is often the sincerest form of flattery and the arrival of new technology combined with the proliferation of social media platforms and online networks makes it easier than ever for investors to share – and copy – trading ideas.

For its supporters this “social trading” is democratising the world of investing by reducing the traditional disparity in trading resources between large and small investors. For critics, this increasing accessibility opens up huge risks for uninformed traders, emboldened to bet big without performing their own due diligence …

Another question that could be asked is what effect the rise of ‘Simon Says’ (from passive investing to seemingly innocuous Twitter trend-following) has on markets? Do the investors who are able to get ahead of – and then generate the most — inflows, stand to outperform? And what impact does that have on markets in general? To the extent that markets were ever concerned with fundamental value, is that dynamic increasingly off-the-table? Do markets and investors become giant inflow-seeking missiles? Hmmm.

From Icahn to ‘I can’ social trading takes off

Millionaire in the machine

Millionaire in the machine

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A non-finance related piece I wrote for Upgrade on one business tycoon’s quest for immortality through new technology.

Dmitry Itskov with Hiroshi Ishiguro at the Global Future 2045 International Congress
Dmitry Itskov with Hiroshi Ishiguro at the Global Future 2045 International Congress

Dmitry Itskov dreams of immortality.

It’s a dream that the Russian multimillionaire is hoping to engineer into reality in a relatively short 32 years with his creation of the “2045 Initiative” – a project devoted to the kind of “life extension technologies” that currently populate science fiction.

Mr Itskov’s second attempt at promoting those technologies to a wider audience is the “Global Future 2045 International Congress,” held in New York over two days in June, and a follow-up to a similar gathering that took place in Moscow last year.

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