
Smart Contracts Land on Wall Street - cdvonstinkpot
http://blogs.wsj.com/moneybeat/2015/08/05/bitbeat-smart-contracts-land-on-wall-street/
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chollida1
I'll bite.

I still don't understand what "Smart Contracts" are and what benefit they
provide over the existing settlement system.

Can someone help me out with an explanation?

Every time someone tries to explain it to me the explanation seems to be "We
embed contracts into the blockchain so there is no counterparty risk." and
then they stare at me like they're Eminem at the end of 8 mile.

 __EDIT __I should point out, I get the speed of settlement argument, though
as I 've said in other comments T+3 is a feature not a bug to many funds. I
just have no idea about the mechanics of it.

~~~
dbs
Securities and exchanges professional here, although based in Europe (no
affiliation with T0 or any related platform).

Settlement is the process by which securities are delivered against payment,
from one counter-party to another (the seller delivers the securities, the
buyer delivers the cash).

What happens today is that both clearing and settlement are necessary because
the speed of trading is much faster than the cycle time for completing an
underlying transaction (delivery versus payment), usually in T+2 or T+3 days.

At the middle is the CSD - Central Securities Counterparty - that
intermediates the delivery versus payment transactions and guarantees that
when shit hits the fan (when one of the parties fails to deliver) the money is
on the table for the other.

Settlement is costly: the CSD charges both parties for this "matching &
insurance" service; sometimes the settlement operation represents the largest
share of the costs involved in a transaction (trading + clearing + settlement;
and after that you have also custody costs).

And usually settlement is only available for very liquid, exchange traded
securities. Because the CSD my have to put money on the table they can do it
only in securities they know they can get their money back. If you are a
broker and there is no CSD you have to trust in the counterparties you deal
with to minimize fail-to-deliver risk. Which brings a lot of inefficiency to
these markets.

With smart contracts, if "the trade is the settlement" (which is a very neat
way of expressing it!) it seems you no longer need to use traditional
settlement services. The trade only occurs when you deliver the securities.
And you have no limitation in the number of securities you can trade. Less
costs, less time to deliver, same level of risks as in with a CSD.(EDIT:
broader, unfulfilled markets). Seems like a wining proposition to me.

~~~
kasey_junk
I completely understand settlement and grasp how the blockchain can be used to
make the paper work more efficient and transparent.

What I don't understand is how it reduced the counter party risk to the trade?
The counter party risk isn't mitigated until cash has traded hands. This is
the expensive part of being the CSD (and the reason big firms want to self
clear).

How does an open ledger help this problem without someone to guarantee the
step between block chain acceptance and "cash in my hand with which I can use
at the club".

~~~
brighton36
Most (all?) open ledgers are marketing scams. The blockchain reduces
counterparty risk because it escrows value, is immutable, etc. Private
blockchains do none of this and are typically attempts by huckster Bitcoiners
to sell software to decision makers at large companies who want to buy into a
buzzword.

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anonu
I dont see how counterparty risk is reduced... especially if these products
are OTC products with regularly scheduled payment legs, you will always have
counterparty risk. It is an inherent part of trading.

~~~
fweespeech
Yeah, its really risk shifting from a single counterparty to the bitcoin
network.

~~~
brighton36
Once you're confirmed on the Bitcoin network - you're immutable. This is
completely unlike incumbent systems. Even in the case that Bitcoin 'went down'
the account information isn't changing. Risk is normalized under a huge swath
of actors from across the world who are burning energy to attest to truth. As
opposed to a single company who has complete authority over the data and/or
value.

~~~
fweespeech
[http://www.coindesk.com/double-spending-risk-bitcoin-
network...](http://www.coindesk.com/double-spending-risk-bitcoin-network-
fork/)

etc

~~~
brighton36
These issues are fairly rare, and in this case, it was due to some miners who
did not upgrade their bitcoind (when everyone was made very clear that there
were a number of large changes). Bitcoin is a WIP. If you're not a wizard, use
a bank such as coinbase or circle who will happily insure you against such
rare events.

~~~
fweespeech
I highly doubt Coinbase can insure $5-10 million dollar transactions which is
what the OP is used for.

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falsestprophet
[http://t0.com](http://t0.com) is the subject of the article.

I don't really understand what they are proposing...

 _" Settlement of securities is a business process whereby securities or
interests in securities are delivered, usually against (in simultaneous
exchange for) payment of money"_ [1]

How are the securities being managed here? Is some entity holding them in
trust for whatever party controls an entry in the bitcoin ledger? What is the
form of that entry?

Are bitcoins being used as the medium for payment?

[1] I copied the description from wikipedia for expediency:
[https://en.wikipedia.org/wiki/Settlement_(finance)](https://en.wikipedia.org/wiki/Settlement_\(finance\))

~~~
brighton36
Bitcoin can transfer any tokenized scarce resource, just like Amex can
transfer any fiat currency. In these cases, the bitcoin network is
transferring bearer bonds. (arguably registered securities)

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kpi
I wonder how exactly it works. t0 are not very specific about implementation
details. If they are using the bitcoin blockchain it should be possible to
point out the actual transactions there.

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amalag
No mention of [https://codius.org/](https://codius.org/) ?

~~~
mwilkison
Codius was discontinued: [https://bitcoinmagazine.com/20985/ripple-
discontinues-smart-...](https://bitcoinmagazine.com/20985/ripple-discontinues-
smart-contract-platform-codius-citing-small-market/)

