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Algo Trading: Greater Discipline At The Greatest Speed March 11, 2020 | Kunal Nandwani

If you are involved in the capital markets, it would be rare that algo trading isn’t a regular feature of your day. Algorithmic trading, also known as automated trading and black-box trading, is most popularly known as algo trading. Algo trading runs on programs that follow an algorithm (a well- defined set of instructions). This revolutionary method, first introduced in the nineties, changed the way people thought about trading. Algo trading executed orders using automated pre-programmed trading instructions accounting for variables such as time, price, volume among several others.

Undeniably, computers have an upper hand over humans when it comes to data processing and speed. Algo trading has made a brilliant use of that. It brought a revolutionary change to the microstructure of the trading market by allowing much smaller differences between the bid and offer prices. This decreased the trading advantage of market makers, eventually leading to an increase in market liquidity. Rest, of course, is history. Today, algo trading is widely used by traders across the world and is also used in investment banks, pension funds, mutual funds and hedge funds. Algo systems utilize a variety of strategies, ranging from arbitrage, market making, inter- market spreading and more. All these strategies involve complex mathematical formulas and high- speed computer programs.

One widely used method in algo trading is HFT (high-frequency trading) which involves complex algorithms to analyze multiple markets and execute orders based on market conditions. HFT involves large transactions within fractions of a second for which robust software programs are required. The success of HFT banks on a highly-balanced mechanism that allows for massive chunks of orders being placed at massive speed across multiple parameters in multiple markets. Thanks to the powerful underlying algorithms, the complex dynamics of HFT works out almost flawlessly. It’s the efficiency of HFT and Ultra HFT that has enabled traders to capitalize on the minutest price differences that might occur for just a micro or nanosecond.

While many opt for algo trading for the sake of:

  • Efficiency and speed; plus it offers a lot more than that.
  • Markets benefit from algo trading on an overall as well. Trading has become a lot more systematic ever since algo trading entered the scene.
  • But the most evident benefit of algo trading has been the elimination of human errors arising from emotional decision making and random intuition. Algorithms are way more disciplined. People can be easily tempted to let a share value go higher or lower depending on how it profits them and often end up losing more than earning. Algo trading takes away probabilities of such human-induced blunders by following a predetermined set of instructions thus making the whole decision-making process immensely quick and accurate. With minimized human intervention and maximized efficiency, algo trading is not only enhancing profit opportunities for the traders but also increasing the overall market liquidity.
  • Algos read high-speed data feed in real-time, identify trading signals, find appropriate price levels and place the orders in a matter of microseconds. Algos are also able to chunk massive orders into smaller split orders at different times. They can even manage trade orders after their submission.
  • From executing trades at best prices to placing orders in a fraction of a second, algos have made it all possible. Accuracy, speed and proficiency, algo trading has got it all. Even in high fluctuations, algos are able to avoid any significant price changes. Apart from that algo trading also helps in reducing transaction costs. When it comes to the markets, Algos exhibit impressive multidimensional capabilities. They can have automated checks on multiple market conditions at the same time. The best part is that you can check the feasibility of an algo strategy by backtesting it using real-time or historical data.

The interesting part is as suited to one's needs, traders can decide the level of intervention in their algo trades. For the likes of APIs (Application Programming Interface), strategies can be picked as per one’s choice.

  • With such algos, one can program the trading requirement which is then executed by the broker. The sending schedule can be controlled dynamically.
  • On the other hand, there are zero-touch algos running on highly-advanced computer programs that can identify an opportunity for trade and execute the same with barely any human involvement. They can also identify arbitrage opportunities and place trades based on factors such as trend following.

The trading world has witnessed an outstanding rise of algo trading, especially in the past decade. 90% of all trading in capital markets in developed markets like the UK, US are done by algorithms. In emerging countries like India, over 50% of all trading is by algos. So it's only a matter of time that most/all trading moves to algos for better, faster, smarter and disciplined trading.

uTrade Solutions Annual newsletter 2020 December 31, 2019 | Kunal Nandwani

Hope is a “Choice” that can empower us in 2020

Recapping the year 2019 and wearing the “20-20” vision to guide our way through a continuously changing and challenging world, economy and capital markets in the year(s) ahead.

uTrade Solutions Annual newsletter – 1st Jan 2020

With the ever-accelerating advancements in sciences, technology and artificial intelligence yet again this year, it seems little can stop us. But might we (and our leaders) be digging our own graves with our consistent ignorance and apathy towards global issues that threaten the very existence of a future for mankind? As the world gets even warmer and climate patterns continue to shift this year, as politics and elections get dirtier and disengaging for the masses, and as more people begin to wonder if capitalism is at the crossroads - we continue to sail through time, armed albeit only with hope as a weapon to protect ourselves from the problems of the near future.

As our planet prepares itself for yet another revolution around the Sun, let’s take a bird’s eye view of how human societies fared with their ambitions in 2019. This year witnessed the turn of events with the US economy moving from projected growth towards a likely slowdown, US China trade wars leading slowdown in the global economy (and rattling many businesses around the world), emerging countries staying “emerging” without much real progress, and most developed countries struggling with continued decline in productivity due to ageing population and specifically EU nearing a recession. Hong Kong protests continued for months as the citizens seek freedom and Government tried retaining control. Basically, most countries and companies around the world are bracing for a very slow 2020.

Indian economy has been on a continued decline in the year 2019, and the downturn is likely to trickle in the year ahead too. It had started with loss of confidence not (only) among foreign investors, but among country’s own consumers and corporates. Loss in investor confidence was accelerated further by the (re-elected) Government budget in July 2019, some provisions of which were quickly overturned 2 months later when rationality prevailed. But the confidence among corporates and investors was already dented.

The slowdown was further fueled with the NBFC crisis (which was a structural arbitrage between what central banks did not want banks to do, and had NBFCs do (long-term “riskier loans” with the “same” banks’ short-term loans), with ILFS and DHFL moving into liquidation and losing billions of bank and investor dollars in the process. With a massive economy (including SME businesses) dependent on NBFC loans, the dry out of liquidity by NBFCs means the SME businesses will shrink leading to job losses, and hence the economic growth slowdown. In the meanwhile, large global corporations also appear to have moved into a “wait and watch” mode before promoting their investments in India.

This leaves only the Government spending to retain the country’s growth, which may not work sustainably as the Government deals with lower tax collections & rising current account deficit.

Key events that shaped Indian capital markets included

  • SEBI has implemented several rules and regulations to protect smaller investors from brokers pooling their funds and pledging their securities, as well as increasing Brokers’ margin requirements (reducing leverage)
  • The ILFS collapse impacted clearing on the capital markets brokers, whose funds got stuck with the institution < /li>
  • NSE launched managed colocation services for smaller brokers through trading vendors < /li>
  • SEBI gave a final order against NSE and several of its members for the “Colo” algo scam, ending years of investigations. < /li>
  • NSE revives its plan for IPO in 2020
  • Karvy stock broking fraud to the amount of up to INR 2800 crores shook the capital markets industry leading to SEBI planning tighter regulations for the brokers in 2020
  • Banks (including Citibank) had to engage regulators and supreme court to settle a large trade on NSE in July 2019, denting foreign banks confidence in Indian capital markets rules
  • Smaller stock brokers struggle to survive and many of them wind down amidst tighter regulations, increased compliance costs, dropping commissions, and inability to cope up with increasing competition from large tech driven brokers
  • NSE SGX tied up for GIFT City connect trading and got the regulatory approvals
  • Indian Parliament passes a bill to form a unified regulator for IFSC Gift City for international financial services business
  • BSE derivatives segment had a renewed push leading to increased participation and liquidity

20 20 vision for the year 2020

  • US elections, trade wars, and it’s slowing economy shall continue to impact the global economic growth and sentiments
  • EU’s economy will be closely watched around the recession line, with Brexit finally happening.
  • Hong Kong’s economy shall continue to falter amidst stare off between the government and activists, and long-term impact as a hub for doing business in China shall be reviewed by foreigners
  • Climate change consequences and headlines will intensify, hopefully leading to political and leadership debates; and in the best case transforming into some much-needed action too.
  • The world should see a shift towards cleaner sources of sustainable energy and increased adoption of electric automobiles
  • Indian Government may offer more tax cuts to revive the Indian corporate and consumer sentiment, in the February 2020 budget. The economy may not be easily revived though.
  • SEBI may overhaul existing regulations and introduce new rules (especially post Karvy), reducing the “broker” exposure from its clients, including direct pay in pay out and custodians managing client assets (and not brokers)
  • USDINR Currency launch in Gift City may lead to higher volumes as it can easily act as hedging instrument for investors and traders, round the clock. (This may also dent DGCX USDINR volumes in the next 1-2 years)

What are we reading and writing

Can conscious social sustainable start-ups save the world?

The rights and wrongs of central-bank greenery. Central banks must pay some attention to climate change. But they should resist mission creep.

In a rare move, Apple, Amazon, and Google just announced a major partnership for smartphone standards

“Our genetics have not changed much in 200 years. What has changed massively is the availability of inexpensive, high-calorie foods coupled with an increasingly sedentary lifestyle.”

Earth Unscrewed shares incredible stories about some of the most exciting developments that are providing some serious hope for the future of our planet. The world is facing a climate crisis and massive systemic change, but we’re confident that if you listen to these new episodes you’ll feel more hopeful and informed about for the future of our planet.

Creating drinking water from just sunlight and air - what if water could be made renewable, highly distributed and infrastructure free

Code for love - Sustainability focussed start-ups

In the name of Art - Banana duct-taped to a wall sells for $120K at Art Basel Miami

What if your job didn't control your life? Brazilian CEO Ricardo Semler practices a radical form of corporate democracy, rethinking everything. If you decide to give back after decades amassing millions, means you took too much in first place

Much of what’s being sold as "AI" today is snake oil. It does not and cannot work. In a talk at MIT yesterday, I described why this happening, how we can recognize flawed AI claims, and push back.

Our decentralised future? A blockchain primer

GPS Maps is possibly worth a trillion dollar platform - Apple told Congress it has spent 'billions of dollars' on Apple Maps

Innovators are seeking to reduce environmental impact and hazards of construction

Tech firms enter financial services - Google to offer checking accounts in partnership with banks starting next year

A Russian startup is selling robot clones of real people

Why some scientists believe the universe is conscious? Are we living the body of another being ? indian #vedas also allude to that

Election manipulation using social media is at ‘crisis’ point, report warns Free speech and privacy on the internet has declined for the ninth consecutive year

40 Newspaper Headlines That Push The Limits Of Human Stupidity

Key takeaways from a keynote talk on Consciousness in Startups: Mankind's progress is remarkable but unsustainable due to climate change, inequality, etc -Startups should solve sustainability issues

Are we living in a simulation?

The Earth is full - Have we used up all our resources? Have we filled up all the livable space on Earth? Paul Gilding suggests we have, and the possibility of devastating consequences, in a talk that's equal parts terrifying and, oddly, hopeful.

An attempt to explain Life. We are all OME. the egg theory

Denmark Offers to Buy U.S.

Humans need bees to pollinate their food, lot more than most other useless assets they keep creating

The Untold History Of Ancient India - A Scientific Narration

World’s total debt is already approaching $250 trillion .. wonder this debt is to whom. someone on Mars? Does our “capitalism” really work? Central Bankers Are Playing a Dangerous Game With Asset Prices

Libra Demystified June 19, 2019 | Kunal Nandwani

Facebook is launching its cryptocurrency the Libra. And China has announced elections. Sounds incongruous? When a corporation known as the embodiment of control and secrecy adopts a platform whose raison d’être is decentralisation and anonymity, well, that is the very definition of incongruous.

The world is excited and agog with speculation because Facebook (along with its other platforms WhatsApp and Instagram) has over 2.3 billion internet users and over 1.6 billion daily logins, more than all daily logins into all bank accounts worldwide. If suddenly these users get access to digital wallets to use the Libra for peer to peer and merchant payments, cryptocurrency adoption rates would go through the roof and a decade’s wait for critical mass would suddenly be over.

Facebook would get access to the massive payments market (which is the largest segment among all financials services), and can couple it with its users’ credit profiles derived from their social data. The possibility is enough to scare the daylights out of banks and several big fintech players in the world.

So the trillion-dollar question is that will Libra be the game-changer everyone is anticipating? I think not, and for more than one reason.

A Whitepaper that Skims the Surface

Like most other crypto whitepapers, the Libra whitepaper has a lot of data copied from different avatars without having all its aspects worked out in detail. A lot of stuff in it is generic blockchain wisdom from Bitcoin, Ethereum, and the likes of several other previously published whitepapers. On the right side, it’s not just a pure retail ICO fundraising plan, though it does ask its members to buy $10m worth of Libras and bear $250,000 per member per year in expenses. But there are several loopholes.

  • The historical data, which can become enormous, may be neglected for validation of subsequent transactions, which defeats the purpose of a true blockchain.
  • There are no details of how regulatory challenges will be addressed, and while there is lip-service towards decentralization, there is no concrete plan to decentralize it away from its large paying members.
  • The whitepaper hints that proof-of-stake is the right validation mechanism, but doesn’t spell out how.
  • And the governance model is massively short on details.

An Antithesis of the Idea of Bitcoin and Blockchain

Bitcoin was invented as an alternative to the existing financial system after its catastrophic meltdown in 2008. It is truly decentralized, and one of the best things Satoshi that did was to remain anonymous. There is no central point of failure in Bitcoin, no dependence on any one person, any one node, any one company, any one CEO, any one nation, any one leader or any one consortium.

Libra fails to measure up to these requirements. It is permissioned, which means Facebook and other firms will be validating all the transactions. Then why call it a crypto-currency at all? Conceptually, there is not much difference between the Libra and airline frequent flyer miles, or other loyalty points programs of hotels, etc. that are accepted within and between consortiums of merchants. As a stable coin, it is just a layer of a payment coin on top of existing fiat currencies. It does not get away from fiat currencies, as was intended by Bitcoin.

The Financial Inclusion Objective

Opening bank accounts for the unbanked population is noble but unprofitable, and very often impractical due to lack of infrastructure in rural and remote areas, and can never be an online-only operation, especially in emerging countries. Libra does not have an equivalent physical mode for operations, so it will fail this test. As far as making financial payments as easy as sending a text message, this objective has already been achieved in the vast majority of developing and developed countries, and anybody reading this blog is likely to be aware of them.

Regulatory Challenges

It is true that with the penetration of the internet, Facebook is likely to have more users than any other country, or all the banks in the world combined.

But financial services is a highly regulated business from KYC to regular reporting, to avoidance of money laundering every financial institution has to undergo ever-increasing local compliances. So does Libra intend circumventing regulations in each country?

As a recent example, Facebook has been unable to launch its payments within WhatsApp in India, due to the local regulatory requirement of localising data within India.

In any case, regulators and governments will not want to lose control of their power and authority, and they would not allow Facebook and its consortium to circumvent regulation, make financial services as deregulated as internet, and be unable to run surveillance for money laundering, tax avoidance, etc. US, Europe, India and many other countries will come strongly against this initiative.

And, without China in the mix, Libra maybe adopted in Switzerland and Malta only.

In a best-case scenario, it may genuinely work in Africa. Governments can, in any case, create their own fiat digital tokens as legal tender for payment of taxes and along with Bitcoins, we may well have the BitDollars, BitPounds, BitEuros, BitYens and BitYuans.

Shared Beneficial Ownership

The Bitcoin Blockchain is owned by the public, striving to build a decentralized financial system where trust is built in a democratic fashion. While Bitcoin was initiated by smart hackers, it was scaled by the tech community and eventually became mainstream, because it seemed to help the whole world and everyone had an equal opportunity to build their businesses around it (like all miners, bitcoin exchanges, etc.). Wikipedia, Linux and several other open and crowd-sourced platforms have scaled similarly. The Libra is far from a decentralised, democratic, community-driven coin defeating its crypto purpose.

Consortium Challenges

Several banks and other firms have attempted blockchain consortium initiatives before. For example, R3 was a similar initiative by several firms signing up for a combined blockchain network, only to realise a few years down the line that they need not do it on blockchain at all since they had no use for its decentralisation benefits. Libra may have obtained some big names as members, but they are likely to be just observers who will distance themselves in case the project fails to live up to its promises in light of the challenges highlighted here and those yet unforeseen. To been seen as independent, Facebook has also not used their branding anywhere in Libra until now. It will help them distance themselves quietly later. Some consortium members have already tried using blockchain (example Masterchain by Mastercard) and not succeeded.

Independent Mining Achieves Trust

Blockchain does not create trust inherently. Several nodes independently validating all transactions for an incentive help build trust in a blockchain. If the Blockchain application did not have enough independent miners, the Bitcoin transactions would not have been trustworthy.Libra will face an uphill task in this area to attract independent miners. Facebook has already had several trust and privacy issues that it had not responded to seriously.Remember it denied swaying voters in US election in 2016, only to admit it later once the Cambridge analytica whistle-blower scandal erupted in 2018. But for that Facebook’s role would never have become public and more elections would have been unknowingly “swayed”. A single person controls 60% of its votes.Besides, backed by research and facebook’s team admissions its usage leads to dopamine release, making it addictive, and not constructive for the society.

What I have stated above is explained succinctly in my recent book Squaring the Blockchain Circle wherein I have in the chapter entitled “Maslow’s Hammer” highlighted how the blockchain hype has led to a large number of (mis)use cases across industries including Fintech. While explaining the origin, strengths and weaknesses of this path-breaking technology, I have also discussed the ways in which blockchain will have a significant impact on our lives.

Unfortunately, Facebook with its Libra coin won’t be one of them.

FAQs

But the existing blockchain systems have yet to reach mainstream adoption. Can Libra change that?

  • Practically not. Cryptos adoption has not happened at mass scale because their valuation was way higher than their value in 2017. Now the re-alignment is happening and it will take a few years for cryptos to possibly come to platform where they can target mass adoption.

Why does Libra have Smart contracts?

  • After Bitcoin, the only real possible value creator has been Ethereum. Its smart contract angle and developer community is too relevant for Libra to ignore. Hence its attempt to incorporate a smart contract story and possibly copy Ethereum model.

Whats wrong with Libra’s statements around Faster payment networks? “We believe that global, open, instant, and low-cost movement of money will create immense economic opportunity and more commerce across the world”

  • Nothing wrong with it. But Bitcoin already achieves that. Its volatility and mining energy issues can and should be addressed in its subsequent version, not by a centralised internet company that nobody ought to trust.

What is the challenge with Libra statement “We believe that we all have a responsibility to help advance financial inclusion, support ethical actors, and continuously uphold the integrity of the ecosystem”

  • Good to hear about responsibility from Libra / FB. So is this really a pre-committed non facebook monopoly system only to help financial inclusion? Can facebook confirm they will not derive any data, any networks effect, direct or indirect platform addiction, and revenues from this?

The world truly needs a reliable digital currency and infrastructure that together can deliver on the promise of “the internet of money.”

  • BTC achieved that since 2009. What’s new here in 2019?

That means anyone with Libra has a high degree of assurance they can convert their digital currency into local fiat currency based on an exchange rate, just like exchanging one currency for another when traveling.

  • Not good enough. High degree of assurance to use my own money???

If Facebook disrupts payments, why will MasterCard and Paypal support it?

  • Most likely they wont. They are in it to learn and adapt as needed, not to make Facebook the payments unicorn.

The association is the only party able to create (mint) and destroy (burn) Libra?

  • So not decentralized? FB maybe able to arm twist anyone to anything, if this platform works.

Why has Blockchain not disrupted the world yet April 21, 2019 | Kunal Nandwani

Given its potential and arguable Bitcoin success as global digital virtual currency, why did Blockchain not disrupt the world yet

1. ICOs gave early exit to potential disruptors ICOs were meant to help raise funds for good Blockchain projects with committed teams. Unfortunately, in the name of “decentralization”, companies raised millions and billions of dollars, on the back of white papers, and did not have motivation left to deliver the projects. Early liquidity, also like in the case of dot com bubble on 1999, meant that true value of the projects and disruptions would take more time before it could be unveiled.

2. (Mis)Use Cases of Blockchain I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail. Abraham Maslow in 1966 (as quoted in Wikipedia)

Myths on Blockchain

Anything on Blockchain does not mean truth

Blockchain achieves truth (transactions validity) in Bitcoin transactions with the help of 1000s of mining nodes, with up to 1000s of servers supporting each node. Miners are incentivized by Bitcoins to perform the mining exercise. For any Blockchain use case, worth asking the following,

  • Are all transactions going to be public? (example, Banks Blockchain use cases won’t like this)
  • You will allow decentralization in the workflow? i.e. Some consensus algorithm (say majority of miner votes), will make final decision in transactions validity (example, Governments or any Central authorities won’t like this)
  • Miners understand and can help in validating transactions (example in supply chain finance, how can miners validate any facts about fake invoices, workflows or multiple discount loans?)

“Blockchain is not the magic wand that generates immutable truth”. It’s just a means to an end. Transparency / Digitization is best achieved by Blockchain Several POC’ed or Advocated use cases are nothing but digitization of some data. Examples below,

  • Land registry on Blockchain is done by several states, governments etc. Whereas none of them has allowed for independent miner validations (i.e. only states can decide who owns which property and when they approve the transfers), so it just makes online record keeping instead of offline. Such processes by Governments and Companies have been digitized for decades, without blockchain, and more efficiently.
  • Invoice discounting If a supplier sends an invoice to a client, that gets accepted, then they can take say 70% loan against that invoice from a bank to develop the products, or get some cash-flow while the products are shipped (say from China to US) which takes weeks. Typically in such loan, supplier, supplier’s bank, client and client’s bank are involved in confirming the transaction and supplier’s bank gives loan after that. This approval process can take days.

The challenge in this loan issuance is that there can be fake invoices, or companies can take bank loan from multiple banks against the same invoice, or that the counterpart client does not exist. Hence banks are cautious in giving such loans.

Now independent miners are bank’s risk departments who can help validate the authenticity of the transactions. And no bank will open their client data to other banks for validation (in fear of losing the client to other bank).

So all that can be achieved is that document transfer between the 4 entities, can be made faster from days to hours, by using digital signing and digital documents transfer. Such solutions exist, and work well without Blockchain. Most problems advocated here are typical digitization problems that can achieve transparency by making the steps in the workflow public. Think about DHL or any other courier service tracking the package in transit, or Uber’s car driver and trip details. People, who need to know, can know it online very easily, and without needing any Blockchain technology implementation.

All crypto-currencies make sense

Bitcoin is owned and run by the community. There is no “known” majority Bitcoin holder. It makes sense for community to adopt it as decentralized currency, as an alternate to fiat currencies.

But different countries like Venezuela launching their crypto currency, or centralized crypto currencies like Ripple make no sense. All they need maybe is a digital currency instead of fiat currency, or digital payment mechanism like Paypal, which has worked well for years.

But if the transaction validation is done by Government or 1 company like Ripple, its not decentralized and is not a crypto currency.

Smart contracts are perfect and legally enforceable

Smart contracts on Blockchain maybe useful for achieving conditions based trigger conditions in the Blockchain. Some known challenges with smart contracts must be understood,

  • It’s debatable whether such contracts should be coded within the Blockchain, or at the application layer on top of the Blockchain.
  • Many smart contracts are poorly coded and hence end up hurting the use cases rather than helping them.
  • Very few proven scaled up use cases of smart contracts exist till date. The most successful ones so far are ICO tokens and Crypto-kitties.
  • If smart contracts go wrong, good luck. And also, they are not legally enforceable in any jurisdiction so far.

The above challenges maybe overcome over time, as the Etherium alike protocols mature improve and become scalable, making them more accepted widely. And smart contracts shall be more relevant as automation & Iots grow, leading to more “machine interacting with machine” scenarios.

So whats needed for Blockchain to work

So where might Blockchain work then? Lets take the most successful Blockchain app. How Bitcoin Blockchain REALLY worked, see below the key factors in its success.

Shared Beneficial Ownership Bitcoin Blockchain is owned by the public, striving to build a decentralized financial system where trust is built in a democratic fashion. While Bitcoin was initiated by smart hackers, it was scaled by the tech community and eventually became mainstream, because it seemed to help the whole world and everyone had an equal opportunity to build their businesses around it (like all miners, bitcoin exchanges, etc.). Wikipedia, Linux and several other open and crowd-sourced platforms have scaled in a similar fashion.

Independent mining achieves trust Blockchain does not create trust inherently. Several nodes independently validating all transactions, for some incentive, build trust in a Blockchain. If the Blockchain app did not have enough independent miners, Bitcoin transactions would not have been so trustworthy.

True decentralization Bitcoin is truly decentralized. There is no central point of failure. There is no dependence on 1 person, 1 node, 1 company, 1 Ceo, 1 nation, or 1 leader.

No contract among transacting parties While doing a Bitcoin transfer, payee and payer do not need to know each other. They do not need to have a legal agreement between them defining terms and conditions of their transaction.

Some other factors There are other factors that need consideration, including, multiple parties executing the transactions, transparency of transactions acceptable to all parties, public or private blockchain, etc.

Book release and review Squaring the Blockchain circle November 6, 2018 | Kunal Nandwani

Squaring the Blockchain circle (Nov 2018)

The hype-fog surrounding the blockchain and its offspring cryptocurrencies is peaking, and this book slices through it. Is the blockchain revolutionary in scope? Absolutely. Will it all play out in line with the investment dollars? Not at all. Squaring the Blockchain Circle critiques the blockchain ecosystem.

ICOs have resulted in some twenty billion dollars flowing into projects even as bubble indicators flash red. Bitcoin has the Midas touch. But there’s manifest blindness elsewhere, and I decimate most half-baked, misconceived blockchain applications attracting funding. The book highlights that very few tokens will deliver lasting value as the next Google or Amazon, and there will be a crash before things normalise. As the co-founder and CEO of uTrade and Hashcove, I have been a part of the euphoria surrounding this technology, as well as a student of its superb prowess.

Divided into three parts, Part I of the book narrates the origin of the blockchain culminating in the ICO boom. The second discusses four specific aspects decentralisation, trust and truth, security and scalability. Part III exposes the fallacy of viewing every database as a nail for the blockchain hammer, debates the value embedded in tokens, their mis-pricing and susceptibility to fraud and finally highlights the blockchain as futuristic technology.Squaring the Blockchain circle.

The book has follow sections and chapters,

Part I

Introduction The Whys and Wherefores

The Invincible Ledger How a Ledger Gave Birth to a Currency

Genesis The Birth of Bitcoin

Breath of the Gods The Story of Ethereum

Cryptic Cryptos March of the Altcoins

Part II

Blockchain 1o1 The Essential Lexicon

De.cen.tra.lis.ed By Netizens, For Netizens, Of Netizens

Trust from Trustless Consensus Begets Trust and Truth

Cracking Fort Knox Chinks in a Blockchain’s Armour

The Scalability Trilemma To Grow, or Not to Grow

Part III

Maslow’s Hammer (Mis)Use Cases

A Coin for your Thoughts Valuation and Regulation Conundrums

Machines in the Anthropocene Blockchain as Futuristic Technology

Book overview

And Satoshi blessed them. And Satoshi said to them, “Be fruitful and multiply and fill the cryptosphere and subdue it, and have domi-nion over the fiat of governments and over the gold of the heavens and over every machine and living thing that moves on the earth.”

First there was the blockchain. Then there was the hype. And now there’s the hype surrounding the hype as almost every book, article and talk commences by ritually declaring that there’s a lot of hype around the blockchain. Since everyone agrees there is one, ergo, there must be one.

Dante Disparte in “Why Blockchain Why Now” (Forbes, April 2018):

We are at the very crest of the blockchain hype cycle where there is a lot of sizzle, little steak and the occasional setback or indictments. All of this denotes progress.

Having paid obeisance at the altar of this hype-fog, my book will slice through it in some detail. Is the blockchain something revolutionary in scope? Absolutely. Will it all play out in line with the way the investment dollars are flowing? Not at all. Through this book, I offer a critique of the blockchain ecosystem, which along with Artificial Intel-ligence (AI) and Internet of Things (IoT), will be one of the key drivers ushering in Web 3.0.

Squaring the blockchain circle requires deconstructing some of our existing social and philosophical constructs, such as how we trust each other and how we arrive at the truth and then record it. There are also our economic and commercial constructs, such as how we set up contracts and agreements and how we resolve our disputes. For centuries, these assumptions have been the edifice of our commerce and have changed little, or not at all, over time. The move from paper-based systems to digital systems and then onto the cloud never challenged these assumptions, just enhanced our capacity to process ever-increasing amounts of data more efficiently. Up until about 2008, when the Global Financial Crisis (GFC) struck us.

The GFC and its aftermath exposed systemic flaws that brought the world economic order to the brink of collapse. Nations went bankrupt, currencies went into a free fall, the world’s biggest insurers failed, investment banks collapsed and the central banks of the world faced a situation rapidly spiralling out of their control. While it is beyond the scope of this book to $%!#yse the GFC and its subsequent fall-out and developments, if it all had to be summed up in one line, that would have to be the collapse of trust.

When trust collapsed, market liquidity evaporated. Blue-chip securities were suddenly unsaleable. Bid-ask spreads went through the roof, and even then there was no guarantee that the markets would absorb supply. Deals collapsed before even the ink was dry on the papers. Financial business came to a standstill, and the Federal Reserve Bank became the lender of last resort holding the scaffolding and injecting liquidity through extraordinary measures.

It was against this background that in October that year (2008), forged in the smithy of the GFC, a person (or a group) called Satoshi Nakamoto published the Bitcoin white paper describing the concept of a cryptocurrency bitcoin riding on an underlying technology the blockchain which could provide an alternative way to build trust, record truth, secure transactions and create a decentralized network spanning the globe outside the purview of any authority.

The initial interest it invoked was limited to a geeky group on the internet called the Cypherpunks, and the world hardly reacted. But over the next five years, critical interest crossed the tipping point, and by 2017 a frenzy was underway. A major part of the reason for the frenzy was the launch of another blockchain in 2014-15 called Ethereum which permitted the creation of many different types of cyptocurrencies or digital tokens, in addition to its native token ether. The innovative idea of Initial Coin Offerings or ICOs resulted in some twenty billion dollars worth of funds flowing into blockchain projects in a short time even as bubble indicators began flashing red all over. The success of bitcoin made blockchain into a household word and unleashed the power of human imagination regarding its applications. Bitcoin acquired the Midas touch.

If you pick any ten books on the subject of blockchains at random, you will come across an identical set of buzzwords describing the heart of this new technology: immutable, canonical, secure, decentralized, peer-to-peer, anony-mous, trusted, transparent, distributed ledger or register. Indeed, the six blind men of Indostan would be pleasantly surprised at their unanimity in describing this beast (with apologies to John Godfrey Saxe).

But in the blockchain applications space, for all its frenzy and billions of committed project dollars, there is manifest blindness. Every industrial database seems to be a fit target for replacement by the blockchain, in a one-size-fits-all approach. A cost-benefit analysis is rarely demanded, and expectations ride sky-high. While I shall have no hesitation in decimating some of the half-baked and mis-conceived blockchain applications that are currently attracting funding and attention, I believe in its power. Just not in the same way as is being touted.

Both governments and corporations, where centralization is the mantra and anonymity anathema, have jumped onto the blockchain bandwagon as the next big thing. The stark contradictions in the strengths of the technology and its areas of application are being completely overlooked.

The real success stories of blockchain as an applied technology so far are the crypto-currencies bitcoin and ether, and the world is still coming to terms with their existence and volatile nature. All this even as smart operators have launched thousands of me-too digital tokens through ICOs in a bid to make hay while the bitcoin sun shines.

As technology companies, uTrade and Hashcove have been at the forefront of developing solutions based on Blockchain for worldwide clients including consulting for governments of India. As the founder and CEO of uTrade and Hashcove, I have been a part of the euphoria surrounding this technology, as well as be a student of its superb prowess. While I entertain no doubts of the success, longevity and transformative ability of Blockchain, I see it happening on a different trajectory from the one we are now on.

This book highlights that only a small percentage of the projects in the pipeline today will deliver lasting value to their owners, because of flawed assumptions. We are headed for a crash before things normalize. Another premise is that those applications where Block-chain is a perfect fit will have a disruptive and disproportional impact whose ripples (pun intended) will spread through the rest of the ecosystem, especially the financial ecosystem.

This book is divided into three parts.

The first part is the story of the origin of blockchain and its enormous success culmi-nating in the ICO boom. Recounted in four chapters, the “The Invincible Ledger” expounds the age-old history and applications of ledgers in commerce and accounting and what makes the blockchain ledger so different, and well, invincible. It also describes how a ledger gave birth to a currency an astonishing “Genesis” if there ever was one, which becomes the title of our second chapter, chronicling all the developments from the birth of the blockchain and bitcoins in their very first avatar by their inventor Satoshi Nakamoto.The second avatar of the blockchain came in the form of Ethereum and its token ether, and the chapter “Breath of the Gods” discusses the changes in the underlying technology that made that such a huge success, and brought into existence a new kind of application the dApp. Finally, “Cryptic Cryptos”, sub-titled “March of the Altcoins”, takes an overview of how the bitcoin seed blossomed into a thousand different coins cryptocurrencies with forks and transitions and variations around a theme.

The second part of the book discusses threadbare four specific and crucial aspects of blockchains decentralization, trust and truth, security and scalability and zeroes in on what is feasible and probable as opposed to what is hyped and hoped. So “De-cen-tra-lis-ed” brings to the fore the paradox that in order to build a decentralised network, you cannot fully escape centralised governance. “Trust from Trustless, Truth from Truthiness” high-lights the fact that while consensus protocols form the foundation of both, yet immutability cannot guarantee the truth and trust cannot bypass the “oracle”. Since a large part of this trust in blockchains emanates from their much-touted security strengths, “Cracking Fort Knox” debates their vulnerabilities in some detail. But of course, all trust and security is of limited use if the solution cannot be scaled to handle the task at hand, and “The Scalability Trilemma” is devoted to this most crucial of aspects that the blockchain can only deliver on two out of its three key metrics at any given time. Readers not too well-versed with the technical terminology employed should take advantage of the introductory chapter in part II titled “Blockchain 101”.

The last set of chapters in part three begins with “Maslow’s Hammer” where the fallacy of viewing every database application as a nail for the blockchain hammer is exposed, the inevitable downside of any new technological breakthrough. For the average Joe and Jane, all the action lies in just the ICOs, which are the subject of “A Coin for your Thoughts”. It debates the value embedded in crytpo-tokens, their mispricing and susceptibility to fraud, and the emerging regulatory and management challenges and the mainstreaming of blockchain applications. “Machines in the Anthropocene” views blockchain as a futuristic technology, the harbinger of “Web 3.0” and a pillar of some exciting transformations to come.

It is a truism that hindsight is 20/20, and it is only looking back from the vantage point of maybe a decade ahead will the true impact of the blockchain be understood. Yet who can resist the thrill and excitement of a revolution unfolding at light speed before their very eyes. If this book succeeds in engrossing you in the unfolding vision of things to come but with your feet planted firmly on the ground, the blockchain circle would stand squared.

The book tries to maintain an objective and frank view of the “blockchain ecosystem”, while trying to keep the content as non-technical as possible.

Happy Reading,

PS: Book is available for ordering at amazon kindle, amazon paperback, flipkart and some local book stores. More details hereby,

https://kunalnandwani.com/books/

Embracing the algorithmic world around us – With Caution July 30, 2018 | Kunal Nandwani

Embracing the algorithmic world around us – With Caution

Humans have worked relentlessly hard in pursuit of a custom-made world that can function as per their needs. Technology is at the cornerstone of all the advances humans have made in this quest. High-end technologies like Artificial Intelligence, Internet of Things, Big Data, Deep Learning etc have become colloquially used words today, thanks to the value they are adding in the life of a common person. For example, Amazon’s Alexa is an artificially intelligent personal assistant that can tell you the latest news or read out a recipe or set reminders for you. It feeds off machine learning algorithms that make it smart enough to have meaningful conversations with humans. Alexa and many such smart machines prove that algorithms are the heart and soul of the brave new world around us. Netflix series “Westworld” and “Black Mirror” , among other shows demonstrate where imagination coupled with technology could take us and hot scary it might become as we become more connected virtually, and less physically with our surroundings.

The Expense of Algorithms – Our Lives are Spun Around Them

An algorithm is a process or a set of rules, to be followed in problem-solving operations by a computing machine. It can perform calculations, data processing and automated reasoning tasks. While staying out of sight, algorithms keep the modern machines running. They make them think and act, as codified by humans. For example, Alexa is a voice-based AI device that is more than just attitude. A small juke box looking device hides a plethora of continuously evolving knowledge aided by machine learning algorithms. Amazon’s AI experts are using big amounts of data to make it understand human language and also be a better speaker. Alexa’s machine learning algorithms learn from the speech modulations of the professional narrators. They fine tune the machine’s synthetic female voice to make it as good as a real human voice. This is one of the many examples of algorithms being used in the world all around us.

Algorithms hide the complexity of machines. They stow away the intellectual property and codes away from human eyes and only let us use the final product. Facebook is a popular case in point. The algorithms on the Facebook website decide what users see in their timeline. It is interesting how users do not get to see all of their friends’ posts. It is the algorithms at work deciding what to show them. Similarly, Google search results are unique for everyone. The recommendations on Netflix or Prime video are also tailored as per unique viewing history. As a user, one does not even need to register these things, but they still are critical to how we live today. This curated world is being driven by algorithms.

The Good and Bad of This World

Google knows when a user has been looking for a particular book and when they turn to the search engine, they display the relevant ads to them. Similarly, Facebook displays content on a user’s timeline as per his interests. This tailoring of results brings a better user experience on the table. It makes internet more useful and contextual to the user. The more the user spends time on the internet, the better his preferences are getting captured every send. The crowdsourced data from different users, applied with appropriate machine learning algorithms, help every benefit by easier google searches (who goes beyond page 1 any more), relevant news on facebook and twitter, amazon suggesting what we may buy, Expedia offering relevant trips, and youtube showing the videos we are likely to watch. US and European capital markets witness over 90% of trading done by algos, on behalf of humans, leading to efficiency.

There are always 2 sides of the coin. While there are a plenty of good use cases of this world, there is a downside too. Is it not too good to be true for facebook to show us the “relevant” news in our feed. Or is it prone to manipulating human minds. Recently held US elections put the bad part in the limelight by showing how Facebook can manipulate user’s exposure to content and try to influence their decision making. Machine learning arguably evolves in any direction without any oversight from humans, and can be very risky and not many understand how it may evolve. Any fake news over the internet can control the minds exposed to it and spur them into a negative action.

And what happens when financial markets are driven by algorithms, and something fails, and all algorithms react in a way that the crash becomes bigger and bigger. This happened during flash crash of 2011.

It is said that there is much bias in algorithms as well. Carnegie Mellon University’s research showed that Google’s online advertisement system was said to display higher paying jobs to more males than females. It is feared that data-based decision making will negatively affect human individuality and identity as well.

Can we trust humans to apply some filtering, their own analysis, on top of the algos curated content that they see? OR would they blindly believe in algos ability to make the right decision for them, without even realizing how that may impact them.

Evolution and The Way Forward

Algorithms define the machines and their processes today. They help devices get smarter and connect to both humans as well as each other effectively. As smart machines will process more big data every second the world over, these algorithms will help machines and artificial intelligence processes become even smarter. There are hypothetical theories in technology like the Singularity theory which states that in the future, intelligence of machines will surpass the intelligence of humans. There cognitive capacity will out run that of the humans. It will be triggered by the runaway technological growth spurring unthinkable changes to human civilization.

However, this is just a theory. Since times immemorial, humans have observed both the positive and negative impacts of any technology that has been embraced by them and the algorithm-based smart technology of today bears no exception to this rule. Maybe regulating the use of algorithms, ensuring users understand what it means and how to take out the biases. There is no denying that algorithms are here to stay and will continue to affect our lives in more ways than we know of today. Saying this, it is also relevant to be prudent while using the technology that simplifies our life.

A next big opportunity for entrepreneurs is to bring the prudence into algorithms to manage their wider adoption diligently. Building police bots for regulation, risk management, compliances, kill switch etc., in the future world driven by machines, shall be critical too.

Busting top 7 myths of Blockchain June 04, 2018 | Kunal Nandwani

Busting top 7 myths of Blockchain

Blockchain has become the most “glorified” database of the 21st century. While there is some proven value of Blockchain (example Bitcoin application) and great future potential; its existing value is being taken out of proportion by the Blockchain “enthusiasts”, “experts” and “advisors”, who do a “lot of conferences”.

Lets look at some of the Blockchain hypes, myths and examine them by “first principle” analysis why they are unlikely to work.

  1. Anything on Blockchain means truth

Blockchain achieves truth (transactions validity) in Bitcoin transactions with the help of 1000s of mining nodes, with up to 1000s of servers supporting each node. Miners are incentivized by Bitcoins to perform the mining exercise.

For any Blockchain use case, worth asking the following,

  • Are all transactions going to be public? (example, Banks Blockchain use cases won’t like this)
  • You will allow decentralization in the workflow? i.e. Some consensus algorithm (say majority of miner votes), will make final decision in transactions validity (example, Governments or any Central authorities won’t like this)
  • Miners understand and can help in validating transactions (example in supply chain finance, how can miners validate any facts about fake invoices, workflows or multiple discount loans?)

“Blockchain is not the magic wand that generates immutable truth”. Its just a means to an end.

  1. Private or Enterprise Blockchain makes sense

Among many stakeholders, IBM has been promoting and selling enterprise blockchain use cases. Several Banks have formed use cases for Blockchain consortiums, to improve inter bank data management, operation process improvements.

For any enterprise to use Blockchain internally, or with other enterprises, we have had proven, scalable and efficient technologies for decades, including shared databases (SQL, Oracle, SAP).

Please note that Blockchain is an expensive technology (in terms of resources, as multiple nodes need to be setup, multiple entities need to validate all transactions since the beginning (no concept of end of day final records, so next day’s transactions begin from next day only and not from the first ever transaction like in Blockchain). Decentralization by definition slows down things and introduces security concerns. For a single enterprise with already trusted internal groups, or a hand full of external enterprises, private blockchain is not the best solution. And for Inter-Banks’ transactions, payments, trade settlements; several existing efficient workflows, platforms, protocols like Swift, FIX etc. exist and work fine. Blockchain as a magic wand will not help at all.

– As an example, if some bank says that they can reduce the current trade settlement cycle from 2 days to 1 second, they should ask themselves that why is it 2 days in the first place. It’s not that they were all waiting for the Blockchain technology to be invented for solving this problem.

If you do not believe this, ask any bank who announced any use case, proof of concept (years ago), if they actually scaled on it or not? Do you recall reading any such “scaled up transactions by banks” PR (press release) after the POC (proof of concept) announcement? I guess not. And I rest my case.

  1. Transparency / Digitization is best achieved by Blockchain

Several POC’ed or Advocated use cases are nothing but digitization of some data. Examples below,

  • Land registry on Blockchain is done by several states, governments etc. Whereas none of them has allowed for independent miner validations (i.e. only states can decide who owns which property and when they approve the transfers), so it just makes online record keeping instead of offline. Such processes by Governments and Companies have been digitized for decades, without blockchain, and more efficiently.
  • Invoice discounting If a supplier sends an invoice to a client, that gets accepted, then they can take say 70% loan against that invoice from a bank to develop the products, or get some cash-flow while the products are shipped (say from China to US) which takes weeks. Typically in such loan, supplier, supplier’s bank, client and client’s bank are involved in confirming the transaction and supplier’s bank gives loan after that. This approval process can take days.

The challenge in this loan issuance is that there can be fake invoices, or companies can take bank loan from multiple banks against the same invoice, or that the counterpart client does not exist. Hence banks are cautious in giving such loans.

Now independent miners are bank’s risk departments who can help validate the authenticity of the transactions. And no bank will open their client data to other banks for validation (in fear of losing the client to other bank).

So all that can be achieved is that document transfer between the 4 entities, can be made faster from days to hours, by using digital signing and digital documents transfer. Such solutions exist, and work well without Blockchain.

Most problems advocated here are typical digitization problems that can achieve transparency by making the steps in the workflow public. Think about DHL or any other courier service tracking the package in transit, or Uber’s car driver and trip details. People, who need to know, can know it online very easily, and without needing any Blockchain technology implementation.

  1. Blockchain is an efficient way of managing data and transactions

Bitcoin gets around 300,000 transactions per day. To achieve these transactions, there are millions of servers running around the world, consuming more electricity than several countries, to validate these transactions. It takes seconds if not minutes to confirm the transactions. This is of course slow and inefficient.

Blockchain and decentralization by definition slow things, make them inefficient. They should be used only if the “real” benefits of decentralization are likely to be achieved. In most Blockchain use cases, centralized non Blockchain implementation will work best.

  1. All crypto-currencies make sense

Bitcoin is owned and run by the community. There is no “known” majority Bitcoin holder. It makes sense for community to adopt it as decentralized currency, as an alternate to fiat currencies.

But different countries like Venezuela launching their crypto currency, or centralized crypto currencies like Ripple make no sense. All they need maybe is a digital currency instead of fiat currency, or digital payment mechanism like Paypal, which has worked well for years.

But if the transaction validation is done by Government or 1 company like Ripple, its not decentralized and is not a crypto currency.

  1. Smart contracts are perfect and legally enforceable

Smart contracts on Blockchain maybe useful for achieving conditions based trigger conditions in the Blockchain. Some known challenges with smart contracts must be understood,

  • It’s debatable whether such contracts should be coded within the Blockchain, or at the application layer on top of the Blockchain.
  • Many smart contracts are poorly coded and hence end up hurting the use cases rather than helping them.
  • Very few proven scaled up use cases of smart contracts exist till date. The most successful ones so far are ICO tokens and Crypto-kitties.
  • If smart contracts go wrong, good luck. And also, they are not legally enforceable in any jurisdiction so far.

The above challenges maybe overcome over time, as the Etherium alike protocols mature improve and become scalable, making them more accepted widely. And smart contracts shall be more relevant as automation & Iots grow, leading to more “machine interacting with machine” scenarios.

  1. All new discounted ICO tokens will rise in value

ICO (Initial coin offering) is the advance sale of a project’s crypto-currencies or tokens, to be used within their platforms or outside, in advance, to fund the development of their platforms. These tokens can be easily sold and traded at anytime, on all crypto-currency exchanges depending on their demand. So, an ICO is when a company raises money in Bitcoin or other crypto-currencies for the technical development of their projects. These tokens are essentially the incentives, for several market participants to use and grow the platform in a decentralized manner. Such incentives are paramount in making a decentralized eco-system operate sustainably. This allows for formation of new economic systems; possibly even capable of transforming / improving wider systems like “capitalism”.

Majority ICOs unfortunately don’t and won’t work because,

Many ideas don’t need blockchain or ICOs at all. They are centralized, or don’t need community, or have no real business models. As explained above, you cannot “decentralize everything”.

Team behind ICOs have nothing to lose; Once they raise millions to billions on an idea, basic prototype at best, proven or unproven team, “self-proclaimed experts” or “larger than life celebrities lending their names”, there is no major pressure to execute their idea well. There is no governance on the use of funds. Compare this to typical startups, where entrepreneurs get modest valuation, and have to be “all in” the project to see any returns after 5-10 years or hard work. They are “on the hook”, forever.

And, lack of regulation, accountability and legality of structures; makes it the “wild west“ of finance and reduces the probability of success.

So where does Blockchain work then? Lets take the most successful Blockchain app. How Bitcoin Blockchain REALLY worked, see below the key factors in its success.

  1. Shared Beneficial Ownership– Bitcoin Blockchain is owned by the public, striving to build a decentralized financial system where trust is built in a democratic fashion. While Bitcoin was initiated by smart hackers, it was scaled by the tech community and eventually became mainstream, because it seemed to help the whole world and everyone had an equal opportunity to build their businesses around it (like all miners, bitcoin exchanges, etc.). Wikipedia, Linux and several other open and crowd-sourced platforms have scaled in a similar fashion.
  2. Independent mining achieves trustBlockchain does not create trust inherently. Several nodes independently validating all transactions, for some incentive, build trust in a Blockchain. If the Blockchain app did not have enough independent miners, Bitcoin transactions would not have been so trustworthy.
  3. True decentralization – Bitcoin is truly decentralized. There is no central point of failure. There is no dependence on 1 person, 1 node, 1 company, 1 Ceo, 1 nation, or 1 leader.
  4. No contract among transacting parties– While doing a Bitcoin transfer, payee and payer do not need to know each other. They do not need to have a legal agreement between them defining terms and conditions of their transaction.
  5. Some other factors –There are other factors that need consideration, including, multiple parties executing the transactions, transparency of transactions acceptable to all parties, public or private blockchain, etc.

If you can see several / all of the above factors in your Blockchain use case, maybe it can work.

 

In my humble opinion, majority use cases being developed on Blockchain do not qualify for, or need Blockchain at all.

 

PS: I truly believe in Bitcoin and the potential of Blockchain and potential of ICOs to disrupt the corporate structures. I am not even too bothered by inefficient or un-scalable Blockchain protocols yet; those would become better in time, for sure. My concern is that Blockchain is taken out of proportion to solve problems that it’s not meant to and never will.

When to use the B* word? When can blockchain actually help? August 20, 2016 | Kunal Nandwani

Quick decision making flowchart.


Branding your startup – How did uTrade do it? August 03, 2016 | Kunal Nandwani

Branding your Start-up

So you’ve jumped across all the hurdles in your way, put in sweat and blood, and invested countless hours to kick-off your start-up. Now how do you get noticed? For startups, it’s important to “go live” and start generating revenue before running out of initial capital. This definitely drives a sense of urgency to succeed quickly. Many entrepreneurs spend most of their time on the concept and its execution, but should also translate the startup’s big idea into a brand idea. Especially as they cross 3-5 years mark and become a real business. Your brand is your identity; it defines how your customers perceive you. It is the experience you deliver to your customers.

Think about the logos of some of the world’s most admired brands (Apple, Google, Amazon). How do you feel (emotionally) when you see their logos? A brand is so much more than a logo and a slogan, it is reputation and feeling.

We partnered with design start-up Yellow Cursor to help us do rebranding. It did not just mean changing the logo and a color change; the focus was also on the color palette, typography, imagery, tagline, perception, etc. We had to do lot of introspection to really answer some tough questions, which we do not think about it in our day to day lives. They summarized their research to come up with a One-line Pitch for the Brand: ‘Enabling Smarter Transactions’

We then hit the drawing board and came up with a number of possible designs, beginning with dozens of doodles:

We finally settled on the insignia shown below. Because, we are providing the explanation after this paragraph in depth

THE SHAPE

The insignia is built from two arrowheads – an upward and another downward. These arrows represent Trading (Up / Down) and Transactions (Inward / Outward). These arrows also form the half-letters U and T.

Enclosed in these arrowheads, at the core, is a motherboard which symbolizes technology. Two horizontal lines connect the motherboard to the outside world, showing the Open Source nature of the brand. The line also represents currency, as it is used in the symbols of dollars, pounds, euros, rupees, yen, yuan, bitcoins, etc.

The square creates a sense of equality and conformity. It is seen as stable and trusting. It also relates to the earth, with each of the four corners relating to the four points on a compass.

THE COLOURS

Blue stands for positivity, innovation, sophistication, energetic, credibility, integrity, reliability, loyalty and professionalism.

The upper half uses a tint of Blue and the lower half uses a shade of Blue.

THE FONT

The word ‘uTrade’ is written with Esphimere, a freely available, futuristic font.

Is this logo too simple?

Yes it is better. Like any ideas, its better to simplify logos too.

We tested our logo against, Timelessness, Portability, Scalability, Colour and Shape Psychology, Culture-Connect, Applicability and Simplicity.

This logo has passed all of these tests. The entire science converges to this logo. Furthermore, the concept helps us derive the branding for products and child / sister companies in the future.

Is it really necessary for a Growing Company to invest in Branding?

Simple answer maybe,

  • No, if you are in early stage and still trying to discover your real sustainable business model.
  • Yes, if you have come on the other side of tough startups ecosystem and are profitable now, and planning to scale.

Let’s face it. You’re in a crowded ecosystem. You need a more distinctive position than: “We’re disrupting X” or “We’re like, you know, the Uber of Y.” A meaningful brand strategy can help everyone understand why YOU matter and why they should care. Differentiation is key to survival as a startup, so you need to get this right.

In today’s hyper-competitive world, emotion is the secret of many of the world’s most successful brands. It can help your brand become more appealing, differentiated, and loved once you recognize its power. Developing a brand strategy that mixes both the rational and the emotional aspects of your brand will win both the hearts and minds of those people you are trying to capture.

Extraordinary things happen when an organization embraces a purposeful brand strategy. It drives new attitudes, beliefs, and behaviors across your team. It evolves your marketing, communications, and advertising. It inspires new product development. It makes your workplace more productive. It changes how people experience your brand. When companies adapt their behavior to live up to the brand promise, people notice. And that’s exactly the result you want.

Don’t wait too long to discover the true, authentic purpose of your brand, and define why it matters to the people that matter to your business. It should be well worth your time.

Why does Blockchain matter? Feb 17, 2016 | Kunal Nandwani

Blockchain is likely to be the most hyped database in the current decade. It is the core technology that enabled bitcoin, which has had challenging ups and downs due to business reasons.

Blockchain has the ability to bring lot of efficiencies in how information is created, shared, accessed, secured, and relies upon crowd efforts for validating the correct information. Hence it is compared with the Internet revolution that started in late 90s. Similar to the early days of Internet revolution, Blockchain has lot of useless attempts of me-too players solving a meaningless problem. The important thing to understand is what is the core problem and can block-chain really help at all. 80% efforts should be allocated to validating the business scenario and the solution, blockchain implementation is likely to be the easier technology part (which has possibly scale challenges due to early stage nature of existing blockchain technologies available in the market, discussed further below).

What is Blockchain

Blockchain is basically a database. Blockchain is a distributed database. Blockchain is (arguably) a crowd-managed distributed database. Blockchain is a crowd-managed distributed secure database.

In a blockchain, copies of a ledger are “distributed” and validated by a consensus process, with multiple users independently verifying ledger changes.

Blockchain was invented as the technology to manage and run Bitcoin. As you may know, Bitcoin was the first digital currency, which was not governed by any Central Bank, no notes were printed, and it was largely up to the worldwide users to ensure it works, without any central authority. In Bitcoin, the most well-known blockchain application, tokenized transfers are made directly between payer and payee, effectively eliminating the credit and liquidity risk inherent in the fiat system.

Potential Applications of Blockchain

Decentralize everything is the core theme of blockchain. Since it successfully supported Bitcoin for years, its ready for experimentation in various other industries and use cases, including:

Digitization of Assets

A company or an authority or similar entity typically centralizes all the asset registrations. What if they could move to blockchain to make it more transparent, efficient, faster and secure. This could apply to - Housing / Cars registration - Luxury assets like paintings, diamonds with digital certificates

Various legal documents are signed by different parties and stored in physical / scanned format and possibly registered with any central authorities. It could securely move to digital format with standardized / custom contract and digital secure signatures embedded within the blockchain itself. Eventually this maybe used to introduce Smart Contracts which can be actionable events based on conditions like time, etc. For example, the Will of a person maybe to enable inheritance of his wealth upon a certain time or event like his death.

Crowd sourced platforms

Many platforms like Wikipedia could benefit dramatically from Blockchain’s information creation and management system.

Identity

Digital id creation for every individual, combining the decentralized blockchain identity verification can create the largest unique digital ids in the world, which various Governments in different countries have failed to do yet.

Financial Markets

Financial institutions including banks have inefficient processes, and legacy infrastructures to manage transactions. Various post trade transactions for payments (example in banks), clearing / settlement in securities world (stock markets), could be dramatically improved by using Blockchain.

But due to high overheads and delays in validating various blocks before the transaction, blockchain may not be useful in live trading processes as yet. This may change, as blockchain technology gets more mature, scalable and faster in the next few years.

Insurance

Blockchain transforms the way people manage identities and personal information, leading that could change the way insurers review risk and price the premiums. Blockchain applications in insurance are likely to start with digital identity systems and management of personal data. Smart contracts (where the outcome is pre-determined or even based) can help end users self administer their insurance policies.

Technical aspects of Blockchain

Blockchain is a sequential transaction database, which contains a continuously growing list of all the transactions, which have occurred in the system. All the recent valid transactions are bunched into a block (hence the name blockchain), which are then timestamped and stored using strong cryptography. Every new block added to the blockchain database, contains a hash (cryptographic hash) of the previous block, which makes it tamper-resistant. This is because changing any particular transaction in the blockchain database would change the hash of the block being tampered with, which would cascade to all the subsequent blocks added in the blockchain.

The blockchain database may be stored fully or partially by a set of nodes (and/or miners), which can verify any transaction being done on the blockchain and these act in “consensus”. Also, in a bitcoin blockchain, a miner has to solve a hard cryptographic problem to confirm/add a new block on the blockchain. This work done by miners is called proof-of-work (and the miners are adequately rewarded for this computationally expensive work being done by them). The proof-of-work makes the database resilient to attacks, as any attacker will need to have control on more than 51% of the computing power of the network to tamper with the transactional data.

A sample visual representation of blockchain is done below:

Blockchain

Challenges of Blockchain

Scale: Cost of computing, energy consumption in mining for transactions becomes very high as the blockchain increases in size. Also, the growing size of blockchain can be a problem as any need node will need to replicate the blockchain, which may take many days.

Speed Currently, maximum no. of transactions supported in public bitcoin blockchain are 7 per second, with proof of work / validations in place.

Recourse / Modifications: Its virtually impossible to modify a transaction once it is put in place.

Private versus public vs mixed: Public blockchains can scale but make process slower, Private ones can be faster but then the use case for blockchain needs to be clear (otherwise a simple shared database may work) and mixed permission based blockchains are in fairly nascent stages yet. Adoption and integration For any disruption, the integration and replacement of current systems and workflows are the biggest challenge. It makes it harder for banks to adopt any change quickly. Legal challenges For any disputes arising from blockchain transactions, there are various loopholes where the existing legal frameworks and courts may not be able to resolve the disputes easily. Future of Blockchain Its possible that blockchain may go through an internet like bubble bust and boom cycle, just compressed into lesser timeframe as shown below.

API Economy: Why every tech company needs an API Strategy? May 29, 2015 | Kunal Nandwani, Harwinder Sidhu

Businesses run a variety of applications, each containing and holding data vital to the needs of an organization. These applications cannot operate in isolation and eventually; there is a need to integrate them with various other applications. This is primarily driven by complex business needs, which call for information and resources, to be shared across the boundaries of these applications.

This interconnection and overlap of business applications and the information sharing across boundaries of application has led to an emergence of Application Programming Interfaces (APIs), which encapsulate and hide the details of one application from another and enable them to share data and information with the surrounding applications. This leads to better insights into data and showing the linkages with various data sets.

APIs have become more than a tool to connect various applications and their data. But, these APIs have become business enablers. Facebook launched its Facebook Platform in 2007, which led to an immediate opening up of social data, which could be leveraged by the third-party developers. Zynga is a prominent example of this era, which led to its tremendous growth leveraging on the social network’s wide reach and popularity. Within a year of Facebook Platform’s launch, there were at least 33,000 applications, which were running on the Facebook platform, which led users to engage with Facebook in newer ways which would never have been possible before.

Also, apart from having a public API like Facebook, there are a lot of products provide an API, using which developers can extend the functionality of the core product. Atlassian products like JIRA have an API, which extend the core functionality of the product. This makes the users of the product sticky and allows the product to be used in ways, in which the original developers might never have intended. Such usage of API presents a great business case, where you retain customers on the strength of the API and its supporting plugins, which makes the product sticky. There are many examples of businesses, where the core business is to provide an API for the consumers. Twilio is an example, which makes messaging, voice calling available as an API. Google Maps API completely changed the way mapping was done before by incumbents like Mapquest or TomTom etc and made it available to a wide array of applications and in turn generating revenues for Google and empowering businesses like Uber.

Several large major online and technology platforms scale mainly because of the APIs structure. For example in the travel industry, Hotels sell their rooms on their online website and also offer the same through APIs to Travel websites like Expedia, MakemyTrip etc. Traveller feedback is shared through the apis of Tripadvisor. Further level of aggregation is done by likes of Kayak.com which access the expedia, makemytrip apis and get the user best prices. Online Users get a one stop content (aggregated), analytics, and various other features through merging of several APIs on a single platform.

Amazon, one of the largest e-commerce companies, offers its content and products on APIs to Junglee and several other similar price comparison websites. Amazon also sources various products from different offline / online sellers through their APIs.

Fintech cannot be any different. Lot of fragmented information and processing is done across platforms. uTrade provides an API on top of its Algo Trading platform – muTrade. The API is publicly available on Github and allows proprietary traders to develop their own trading algorithms, which they do not need to share with anyone. Whilst we provide several inbuilt algorithms (more than 50 algos currently); we understand that various traders would like to build their own different proprietary algorithm, and we should be able to help them with market access, risk management etc. Within the platform, there is no distinct advantage to an algorithm that runs internally versus the algorithm that runs on an API and they both perform at the ultra low latencies (~10 micros) offered by the muTrade Algo Trading platform. This lets uTrade focus on the best and ultra low latency trading platform and the traders can focus on their strengths and use their prop strategies and logics, for their own benefit.

APIs economy in today’s digital world is the paramount necessity for all technology and Internet based companies. However, the way they are being consumed may change (for better) in the coming years. It would be interesting to see how the APIs shape and change even further, the way business is done in future.

Open Source Products in Financial Technology Mar 10, 2015 | Harwinder Sidhu

Open Source software has taken the world by storm over the last two decades or so. If you look under the hood of any of the big software applications, you will see a number of open source libraries being used in the product. For example, if we look at the number of libraries being used in the Adobe Reader XI, the list of third party license/notices run into 61 pages, with a variety of open source software being used ranging from graphics libraries to compression and even some libraries from marquee projects like Open Office, Mozilla and the Android projects.

However, we do not see many domain specific application softwares in the open source world. Things are slowly moving into this direction, but there is a lot of progress to be made. And, this may be the next big thing in the open source world, where one would see new companies release mainstream application products which are open source, with an “Open Core” business model and giving the Traditional vendor companies a run for their money with their quality, feature set and rapid innovation.

Benefits of Open Source Software

It is now widely know the immense benefits of open source products:

  • Quality - Open Source leads to more high quality-products or libraries. I would mention the example of Boost libraries for C++, which is a very high quality peer-reviewed cross-platform C++ libraries.

    Also, making a product open source leads to more set of eyes looking at the code, thus enabling more peer review of code and probably, leading to faster fixing of defects as well.

  • Innovation - When you have open source products, there is a likelihood that more people would be using your product in the way you would never have imagined. This leads to feature requests and often redesign of the applications, making them better in general.

  • No Vendor lock-in - Since you have the source code, there is no need to be locked into a particular vendor when looking for upgrades and maintenance of the product. An open source ecosystem leads to more service providers, who would work be more than willing to enhance and maintain upgrades or fulfulling special requirements of the client.

  • Transparency - Software cannot get more transparent than this. With an open source product with significant community,

  • Security - Obscurity does not help when it comes to information security in software products. Open Source software leads to a healthier and more secure products.

  • Stand on the shoulder of giants - Lots of great open source software has been possible because of the large number of open source projects which done been done before. A lot of “big data” applications and frameworks may not had been possible without Hadoop.

OSS being used in Financial Firms

If you look at technology stacks in any of the large institutions (particularly, financial institutions, as we are in the financial technology space), one would see a large number of open source products being used everywhere.

Compilers

GCC and Clang have been leading the way in terms of feature support for C/C++ compilers and they have been way ahead of the commercial competitors, in terms of the new C++11 standard support.

Application servers

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Open Source Technology Platforms

Given the fact that fundamentally most technology platforms within capital markets do very similar things (access information, manage trades and risk, comply with regulation, etc.), there could be a significant growth potential in the market to collaborate constructively. They can leverage off latest and greatest open source technologies and developing technology solutions for the financial markets in an open-source fashion, leading to lower cost of platform development, deployment and use that is highly desired by various financial services players (especially in the current market conditions where there is a massive slow-down since last few years and the revenue / profit model of these participants has been significantly eroded, and the requirement to spend to technology is only increasing) and let the niche players build their specialty or specific premium solutions on top of the core open source core financial services technology solutions.

Rise of electronic / low touch trading

Investors will need less and less hand holding from brokers and their traders. They will do more self-directed trading with the ease of use of technology. The western and developed markets have already seen this trend in the past decade (around 70% of American and 50% of European trading is driven by electronic tools); the emerging markets will move towards a similar ratio of technology driven trading. The trading workflow will move to more web and hand-device based platforms.

Low latency trading growth will slow down; given the massive investment required to push it to faster speeds (example Chip based / FPGA trading platform cost is very high and the potential returns do not justify the investment)

Self-learning machines leading to virtual and artificially intelligent trading is an area that may witness some reasonable growth.

Virtual simulation of trading environment and virtual trading may meet advances in the gaming industry.

Enhanced User Experience

The user experience for traders would continue to dramatically improve with the ease of information access, simpler and automated trading workflows (like 1 touch or even no touch fully automated trading).

Devices interactivity enhancements

As people become more mobile and the technology through cloud and various computing devices (mobile, tablets, laptops) support the ease and continuity of platform access, the boundaries between all these devices would be blurred and the user would seamlessly pick up any device in any location and be able to access information and trade into any financial markets. The optimization between the location, cloud access, computing power used, based on the proximity and the markets to be traded could lead to interesting business opportunities.

Social driven trading

Social networks would play an important role in the trading life-cycle as the information sharing becomes faster, more trust-able and the investor sentiment analysis becomes more feasible through the social platforms like Twitter, Facebook etc. Social collaboration and interactivity may lead to better trading ideas which can create more value over time.

Blurring of boundaries between capital markets players

There is likely to be more competition across the value chain of financial services players like brokers would continue to match orders like exchanges do, exchanges would offer broker alike trading and algo platforms so as to control the shift of liquidity, institutional investors may also get into broker and exchange roles somewhat to avoid information leakage etc.

There would also be a large consolidation among various capital market participants. And the competition among exchanges, brokers, investors would continue to become more global as world becomes .

Rise of regulation:

The regulatory bodies will try to control the increase in adoption of technologies within the financial services (given that s very hard for them to follow, understand and regulate the innovation in the market) leading to slower future growth in innovative ways of trading. There will be a shift towards more transparent modes of trading (example move from OTC to exchange listed / cleared products).

Tomcat is more or less the standard application container for most Java applications. In the J2EE space, JBoss is as prevalent as WebSphere.

Databases

MySQL and PostgreSQL have led the way for most open source databases. And, in today’s you will not find many applications which do not support one of these two leading open source databases.

Web Browsers

Firefox and Chromium have been the first browsers with support for most of the upcoming standards, be it features in the latest HTML5 standard or CSS standards. Microsoft Internet Explorer has been more of a laggard in this space. Also, commercial browser vendor Opera has ditched their own browser rendering engine Presto in favour of Webkit (Blink, actually).

Open Source Products in Financial Technology

Financial Institutions have been using open source projects throughout their technology stack. Full-suite application software is probably the last mile, where the financial institutions and the industry, in general, can adopt open source produts and bring the associated benefits for everyone in the ecosystem.

Increasingly, there have been products in Financial Technology, which are open source and are being widely adopted. QuickFIX is unarguably the most widely used FIX engine, which is probably being used in all the financial firms (big or small). And, OpenGamma has coming up really well as an open-source Risk and Margining system, which is increasingly being deployed across various financial firms.

Another notable mention is FinTP product by Allevo, which is a very well respected product in the payments and financial transaction processing industry. Allevo has release the core engine of their product FinTP under GPLv3 license and the source code is available on github.

In the capital markets space, there have been products like Marketcetera, Tradelink, Lodestone (Deutsche Bank initiative), which have tried to fill that gap with varying success. We, at uTrade, believe there is an enormous scope here to create a truly world class open source product in capital markets space. uTrade had participated in the Fintech Innovation Labs program last year and presented why Open Source in Capital Markets would work.

We would like to announce that we are opening up the core of our multi-asset trading platform and various other components/modules, which we have created over the past 3+ years. We would offer all this codebase to the community for criticism, adoption, contributions and collaborative development, which we think, will enable us to improve this product with the help of the vast open source community. All this code will be offered under a very liberal Apache License. We’ll be releasing this product on our github page in the next 2-3 months. Watch out !!!

Social Benefits of HFT and Algo Trading - Regulators should embrace them Jun 18, 2013 | Kunal Nandwani

The tremendous growth in financial trading volumes in the last couple of decades has been made possible only with the use of technology. Technology has helped in

  • automating the dissemination of market data and other relevant information by exchanges and trading participants

  • capturing and consolidation of market data from various exchanges and other sources of relevant information

  • making complex calculations on live and historic data, leading to trade decisions

  • trading and managing risk

  • lowering the latency and cost of trading

  • various post-trade processes

Technology is heavily and generally efficiently used by brokers (providing various retail and institutional investors access to financial markets), high frequency traders (who trade in huge volumes aggregating small profits in as many trades as possible, this typically includes arbitrageurs and market makers), quant algo traders (who use quantitative models to predict the future prices etc.), exchanges (who are the liquidity aggregators forming markets), and various other market participants. Each stake holder mentioned above has a significant role in the orderly functioning of the financial markets. Comprehensive Risk Management is the foremost requirement in managing these financial trading businesses.

There has been a major backlash against the financial firms (primarily the ones driven by technology including HFT firms) especially since the Flash Crash - European regulator wanting Half-second delay before execution of a trade or cancelling an order in a bid to temper incentives of trading fast.

It’s like introducing a speed breaker on a high way. People will drive very fast up to the breaker, and speed up again once they cross it. It’s not that hard for HFT firms to adjust their trading algorithms to accommodate for this regulatory change and still do what they intend to do.

  • Indian regulator proposed that the exchanges to accept orders alternately from a co-location member (whose servers are located in the same physical location as the exchange) and a non co-location member.

Depending upon the cost-benefit analysis, an HFT firm can setup a co-location server and a server in proximity to the exchange and alternate sending of these orders through those 2 servers by adjusting their strategy.

  • Capping the order to trade ratios for all market participants.

Technically the algos can work around this as well. But this can certainly help reduce some over-fishing in the market(i.e. algos sending too many smaller orders at wide limit prices and then cancelling them to search for trading opportunities which are not easily transparent).

  • Certain regulators trying to have HFT players notify the exchange or the regulator of the algos used by them

Its part of Germany and s regulatory system, but does not curb the automated trading related over-trading triggers as the regulators or exchanges will not easily be able to understand the detailed functioning of the algos. They can only try and ensure the HFT firms ensure sound risk management and follow the practices strictly at the time of algo approval or audit.

  • Retail Investor has a disadvantage and cannot access the same arbitrage opportunities due to lack of access to same technology as HFT firms

Retail Investor should not be trying to do sub second arbitrage the market in the first place. It’s like saying a cyclist cannot ride as fast as a car on a high-way and car-drivers should be stopped or slowed down. Retail investors should look to take slightly longer term view as they had been doing historically.

  • Institutional investors can also not compete with the HFT firms’ rise in technology

HFT firms had been driving the use of technology and advancement to low latency trading. In their constant RnD process, they have stepped up in the technology value chain and have enabled the Institutional investors with good and efficient trading tools at affordable prices. For example, execution algorithms like VWAP, Smart Routers were not available to Institutional Investors a decade or two ago, but HFT firms led RnD and trading styles have made execution algorithms available to other Institutional as well as Retail Investors indirectly. Also, the objective of the Institutional Investors is typically to manage portfolios over with longer horizon targets rather than intra-day small price movements.

  • HFT firms lead to market failures and crisis like Flash Crash in 2010, Knight Capital’s loss in 2012, etc.

In the absence of HFT, there had been ample crises in the financial industry (and in several other industries too) including the LTCM Crisis in 1998, Sub-Prime crisis in 2007, where the human processes have led to major crisis in the markets. The use of technology if managed well and regulated efficiently can actually reduce the probability and scale of such events.

For example, If an airplane crashes, it does not make the Air Travel a bad business. Air travel brings lots of benefits to our social and economic growth that it’s worth it despite rare unfortunate crashes. The regulators in that industry focus on ensuring the safety of passengers and plans is an utmost priority for the airlines.

In a similar way, HFT firms understand the risk management priority and usually target to mitigate and manage risk first, and then focus on profits.

HFT firms actually help in providing better liquidity in the market, lower cost of trading, tighter spreads, that help institutional investors and retail investors in getting their executions at better prices. Use of technology in the trading value chain has lead to split second order executions

  • Imposing extra-taxes on HFT (like a regulatory proposal out there in Germany). Make it expensive for HFT players and reduce their net profits.

Such moves will either move the HFT firms to alternate venues or countries with lower or no taxes or hurt their profits up to a certain point, beyond which it does not make sense for them to be in the business (as some German HFT players are pondering to shut down)

Regulators across the world should embrace the constructive technology developments in financial markets that support growth of businesses and the economies. Their goal should be to understand the market behaviour, advancements in technology, bring transparency to the market, introduce risk management measures like a kill switch (for cancelling all trades when things go wrong), push for stronger stress testing of automation tools, enforce compliance, track patterns that may lead to systemic risks, and lead to a solid and comprehensive risk management across the financial industry.

Open Source Technology for Financial Services Nov 26, 2012 | Kunal Nandwani

Financial services plays an important role in the and their functioning. Following the credit crisis (2008), and its various consequences (deleveraging, lesser sophisticated financial products, shift towards increased regulation and transparency, reduced transaction volumes and margins, etc.) have lead to a massive shrinking of the financial services market size. This has led to a large down-sizing amongst the key participants including brokers, investment banks, exchanges, technology vendors, institutional investors (funds), etc.

With the above mentioned business scenario in mind, and the fact that all these participants need technology for automation, growth and even sustenance of their business, do we need every participant (10,000s of brokers, 100s of exchanges, 1000s of technology vendors, 100s of regulators, 100,000s of investment firms worldwide) developing fundamentally very similar technology for their business. For example,

  • if a regulator wants brokers to report every trade on behalf of their clients in a certain way, should we have various brokers and various vendors develop the same solution?

  • if a broker needs to connect to an exchange, or update its connectivity protocol to the exchange as per the exchange requirements, should we have various brokers and technology vendors spend their limited resources in doing the same work?

  • in accordance with the latest regulations like MiFid, Basel, etc., should we have all Investment banks develop technologies to deal with the calculation and management of corporate level risk, liquidity, capital ratios, accounting policies?

  • if an exchange or a regulator enhances the risk management policies, or trading workflow (to achieve best execution etc.), should each trading technology vendor and broker develop the same enhancement in their technology?

The above examples highlight a massive duplication of efforts that go on in an in-efficient financial services sector. When the resources are limited, times are tough (since last 5 years and for foreseeable future), the business model of the sector is being redefined; how could we afford such a duplication in efforts? Should we not try and find common solutions which work for most participants, and have other participants develop the premium technology and service solutions?

Similar initiatives led by open source technology platforms in other domains like Operating systems (Linux), FIX trading engine (QuickFIX), Web browsers (Mozilla Firefox), Web server (Apache), Web scripting language (PERL) have proven to be very productive for different technology eco-systems.

Open source technology primarily means that source code of an application is included in its compiled version, freely distributed (possibly with some re-selling / licensing constraints) and it leads to various developers across the world using that code, enhancing it to their custom requirements, and contributing back to the overall open source code repository. In medium to long term, it leads to enhanced and corrected technologies, and creates a deep platform which is widely used by various developers and users around.

We can broadly divide the financial services technologies into a few categories like Trading Platforms (including order management systems, algorithms, over-the-counter trading platforms, client connectivity system, exchange adapters for orders / executions and market data), Risk Management Systems (pre-trade and post-trade), Corporate level systems (for accounting, back office, etc.), Regulatory and Compliance reporting systems, Data management systems (including analytics), Exchange technologies, etc. Experts into these systems may contribute for a wider productive cause and help create the Financial-services Open Source Technology (lets term this as FOST). Such an initiative, while disruptive and leading to some winners and losers (hence it will be widely criticised first), can be the right collaborative and productive initiative for the future.

Potential criticisms (picking top 3 that come to my mind):

My software system is very complex and sophisticated, no open source can replace it : If you can build it, most likely others can as well. Please try and be realistic. If your system is really that sophisticated and complex, consider sharing it with others through FOST if you feel the initiative is valuable for eco-system over time, else you may continue to work independently.

What about stability, security of the modules offered on FOST? : Is a collaborative effort. We should look up to everyone to selflessly help drive this initiative. In general, open source technologies offer better performance, better security, and more flexibility at competitive cost.

How will such a product be maintained, enhanced, customized, and serviced? my business depends on it : Linux is a very good example. You can use the basic products directly at no cost. You may test it and customize it to your needs. For its premium versions there are products like Red Hat that provide customization and support (FYI, Red Hat is a multi-billion dollar company, so money can be made through the open source technology initiatives). We expect various other companies to come up and offer premium service models on top of FOST.

The key benefit remains a lower cost technology solution for financial services (this cost is typically very high ranging from 10%-50% of the participants overall cost) and the creation of a more efficient, productive, educative, innovative and collaborative eco-system.

Please help spread the word and lets debate this constructively.

Future of Capital Markets Nov 19, 2012 | Kunal Nandwani

Financial trading has grown from manual to electronic to automated with the use of algorithms in the last few decades. The increased adoption of technology will lead to disruptive trends in the current decade and drive exponential growth in newer business segments created within the capital markets (like additional liquidity that was generated by Algo/HFT players in the last few years) . We will possibly witness some of the following trends:

Open Source Technology Platforms

Given the fact that fundamentally most technology platforms within capital markets do very similar things (access information, manage trades and risk, comply with regulation, etc.), there could be a significant growth potential in the market to collaborate constructively. They can leverage off latest and greatest open source technologies and developing technology solutions for the financial markets in an open-source fashion, leading to lower cost of platform development, deployment and use that is highly desired by various financial services players (especially in the current market conditions where there is a massive slow-down since last few years and the revenue / profit model of these participants has been significantly eroded, and the requirement to spend to technology is only increasing) and let the niche players build their specialty or specific premium solutions on top of the core open source core financial services technology solutions.

Rise of electronic / low touch trading

Investors will need less and less hand holding from brokers and their traders. They will do more self-directed trading with the ease of use of technology. The western and developed markets have already seen this trend in the past decade (around 70% of American and 50% of European trading is driven by electronic tools); the emerging markets will move towards a similar ratio of technology driven trading. The trading workflow will move to more web and hand-device based platforms.

Low latency trading growth will slow down; given the massive investment required to push it to faster speeds (example Chip based / FPGA trading platform cost is very high and the potential returns do not justify the investment)

Self-learning machines leading to virtual and artificially intelligent trading is an area that may witness some reasonable growth.

Virtual simulation of trading environment and virtual trading may meet advances in the gaming industry.

Enhanced User Experience

The user experience for traders would continue to dramatically improve with the ease of information access, simpler and automated trading workflows (like 1 touch or even no touch fully automated trading).

Devices interactivity enhancements

As people become more mobile and the technology through cloud and various computing devices (mobile, tablets, laptops) support the ease and continuity of platform access, the boundaries between all these devices would be blurred and the user would seamlessly pick up any device in any location and be able to access information and trade into any financial markets. The optimization between the location, cloud access, computing power used, based on the proximity and the markets to be traded could lead to interesting business opportunities.

Social driven trading

Social networks would play an important role in the trading life-cycle as the information sharing becomes faster, more trust-able and the investor sentiment analysis becomes more feasible through the social platforms like Twitter, Facebook etc. Social collaboration and interactivity may lead to better trading ideas which can create more value over time.

Blurring of boundaries between capital markets players

There is likely to be more competition across the value chain of financial services players like brokers would continue to match orders like exchanges do, exchanges would offer broker alike trading and algo platforms so as to control the shift of liquidity, institutional investors may also get into broker and exchange roles somewhat to avoid information leakage etc.

There would also be a large consolidation among various capital market participants. And the competition among exchanges, brokers, investors would continue to become more global as world becomes .

Rise of regulation:

The regulatory bodies will try to control the increase in adoption of technologies within the financial services (given that s very hard for them to follow, understand and regulate the innovation in the market) leading to slower future growth in innovative ways of trading. There will be a shift towards more transparent modes of trading (example move from OTC to exchange listed / cleared products).

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