Articles related to financial technologies (fintech)

A brief guide to Initial Coin Offerings (ICO)

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Initial​ ​Coin​ Offerings​ ​(ICO)

The introduction of Bitcoin in 2009 gave us resources and infrastructure to transact primitive digital tokens of value (bitcoin in the event of the Bitcoin blockchain) over the open public internet without trusted intermediaries. However, so as to create new tokens one either needed to scale and deploy a new blockchain network (likely forked from Bitcoin), or problem tokens on top of an existing blockchain network like Bitcoin (through metadata encoded into raw transactions). The former was an uphill struggle due to challenges of scaling and achieving network effects to get a new blockchain, and the latter was challenging due to the complexities of trying to encode sufficient information related to new tokens into raw Bitcoin transactions. Neither model was perfect.

But with the introduction of Ethereum in 2015 arrived the the Ethereum blockchain not only provided the infrastructure for transacting primitive digital tokens (ether in this case) but also provided the capability for easily creating and autonomously managing other secondary electronic tokens of value within the open public internet without reliable intermediaries.

Applying this concept of smart contracts, which can be effectively applications running a top a decentralized network, tokens can be generated and allocated to users, and made to be readily tradable. This process of creating tokens and distributing them to customers in exchange for a network’s primitive electronic token (cryptocurrency) is called an ICO process, and can be viewed as a novel distribution channel for assets.

Not all tokens are created equal

This post Isn’t supposed to be an introduction to the technically rich world of cryptography, blockchains and consensus mechanisms, for which there are numerous excellent entry level resources. However, the key point to bear in mind is that secondary tokens are not like primitive tokens (cryptocurrencies such as bitcoin and ether) that are inherent to the “structural integrity” of a blockchain network.

Open peer-to-peer worth transfer networks, for example Bitcoin or Ethereum, need to endure complex attack vectors within an open hostile environment – where all parties (hosting or accessing the community) are assumed to be self interested and focused on optimizing their own value. In this scenario the key question is how do all parties be incentivized to work for the greater good of securing the community while fulfilling their self-interest. This leads us into the real innovation of this blockchain network, the primitive token (or cryptocurrency).

In addition to being the subject of transaction between parties On the network (the users), the crude token is also used to incentive key parties competing to reach consensus (the miners) as quickly as possible on the state of this blockchain ledger (i.e. who owns what primitive token). The reward for securing the network and reaching consensus is either new supply of crude tokens or transaction fees. In this model, trust is made from mistrust through expending energy in the mining process, which makes the violation of the “sanctity of the blockchain ledger” costly and economically unfavorable to the option of procuring the system and being rewarded in the native store of value for the effort of doing this . It is a self-contained system that is simple and beautiful in its implementation, and requires no more controls and rules than are necessary.

Here you can see the core purpose and the unique nature of a cryptocurrency, and why it is fundamental to a blockchain network: cryptocurrency is the atomic element where the open public blockchain network is forged. On the other hand a secondary token, that is made in addition to a blockchain network, is merely a representation of some “property rights” that may (or may not) be external to the blockchain e.g. “real world assets” or access to products/services.

Inherent blockchain and its cryptocurrency to create and issue (through an ICO procedure) secondary tokens for any purpose, but this only uses the open public blockchain as an independent “custody or notarization” data layer.

ICO and token issuance

Among the most obvious and natural use cases for ICO based Secondary token issuances is to represent some form of conventional security e.g. equity, debt, participation in profit sharing, etc.. In addition to issuance, allocation and transferability being programmed into an immutable smart arrangement, one can also predefine a set of events like cash flow rules which could be triggered either at set times or by particular external events. There are a number of reasons why a public blockchain infrastructure is logical for the issuance and management of financial securities, which are mostly associated with custody regulations around how client money and asset are managed through their life cycle.

However, since the “offer and sale” of securities is in and Of itself highly controlled, many models have been devised by startups to allow the issuance of tokens through an ICO distribution version whilst not falling afoul of securities regulations. As well as the question around whether a token is a security or not there are also lots of other unanswered questions related to tax of capital gains and KYC/AML rules. These are a few of the regulatory and statutory financial considerations which are currently an ongoing area of development and appraisal.

Recent SEC investigative report, these aspects will be the most crucial on how ICO And the issued tokens are classified by regulators globally.

Implications of Blockchain in Securities industry

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The exploration of Blockchain applications in the securities Industry has already begun and seems possible to pick up steam in the next several years. Many financial institutions have created in-house teams and study labs to construct and examine Blockchain networks, or are working together with third party sellers specializing in this space. In addition, companies have sought to participate in collaborative efforts with consortia to develop a frequent Blockchain frame and make industry standards.

The used cases of Blockchain applications are between the equity, debt and derivative markets. Since the implementation of these Blockchain applications advances, issues are being raised concerning how processes involving Blockchain fit within the present regulatory framework. In light of the trends, this section highlights some key factors linked to Blockchain execution and regulation.

Implementation Considerations

Developing Blockchain applications in the securities Industry can present many challenges. In trying to overcome those challenges, some of the essential considerations for market participants in executing a Blockchain network may consist of governance, operational architecture and community security.

Governance

One of the key governance principles of the Bitcoin Network Was to establish a “trustless” environment open to the general public, where no single party is responsible for, or enabled with, governing and operating the network. Although this kind of network may offer certain advantages like providing a decentralized system which isn’t dependent on any particular party to operate, it may also pose some vulnerability in case it contributes to inefficient management of the machine. As an instance, recent events have shown that lack of a central governing body for its evolving Bitcoin Network has generated concerns for the system, as participants try to ascertain an approach to handle greater transaction volume. Therefore, a Blockchain network dependent on the use of a trustless system, where no party is responsible or liable for the appropriate operation of the machine, may pose risks to investors and markets. Many market participants are working to use private Blockchain networks using a governance structure that takes into consideration that participants in the network are generally known and trusted parties.

When setting up or engaging in a private Blockchain Network, in which multiple organizations across the sector are involved, a number of the first governance questions that need to be answered relate to the operation of the network and deciding that bears responsibility for it. Below are the types of questions that market participants may wish to consider when creating a governance structure to get a Blockchain network.

· Can the governance arrangement for the Blockchain system be determined by a single entity or a set of firms? How would the pursuits of end-users, that aren’t participants on the community, be represented?

· Who would be responsible for ensuring adherence by amateurs to the prerequisites established for the Blockchain network, and how could this be ran?

· Who would be accountable for the day-to-day operation of this system and resolving any technical problems on the network?

· Who would be responsible for setting and maintaining a affordable business continuity plan (BCP) to your network, to address some unanticipated emergencies or significant business disruptions?

· How would any conflicts of interest in the performance of or participation on the community be addressed?

· How would mistakes or omissions about the Blockchain be mirrored or rectified?

Operational Structure

A Vital concern for market participants in executing a Blockchain system is discovering the operational structure of the network. The operational structure of a Blockchain system would normally include creating a framework for: (1) network participant access and related on-boarding and off-boarding processes; (2) trade validation; (3) asset representation; and (4) data and transparency demands. Following are a few locations that market participants may want to consider when creating such a framework.

On-boarding, Off-boarding and accessibility:

It is vital for a Blockchain system to launch, as portion of its operational infrastructure, the standards and processes for establishing and keeping participating members and determining their level of access. Especially, in developing a Blockchain community, applicable parties may Want to think about how they would:

· Establish eligibility standards for participants to gain access to the network;

· Establish a vetting and on-boarding procedure for new participants, including establishing an identity verification process and executing proper user arrangements prior to on-boarding;

· Grow an off-boarding process for participants that may be non-compliant or disqualified for violating securities laws, rules and regulations or for violating system rules; and establish exclusion criteria to discover previous participants which might have been disqualified;

· Memorialize the terms of engagement and code of conduct required from all participants;

· Establish varying degrees of access for different player groups (e.g., direct network participants . indirect users running transactions via direct participants)–that might include restricted access to certain data sets, and even constraints on ability to read or write about the shared ledger; and when the network includes global participants or entities from different countries, it may be desired to present special focus on regulatory requirements in those various jurisdictions, particularly as it relates to privacy and information sharing; and

· Determine which sort of access would be given to regulators.

Transaction validation:

As previously described different kinds of methodologies before launching a transaction identification methodology, network operators are most likely to evaluate the advantages and disadvantages of each methodology. In doing this analysis, some prospective questions network operators might desire to consider are mentioned below.

· If consensus-based, would it take a proof-of-concept or would it be an easy consensus algorithm? How much latency and sophistication would that add to the validation process? What is the risk of collusion by multiple parties to validate a fraudulent transaction?

· In case single-node verifier (i.e., one single node will be responsible for confirming all transactions), how would that verifier be determined? Is the simplicity and speed of a single-node verifier value the concentration of risk? What would be the backup or recovery process in the event the single-node is unavailable or endangered?

· How would the amount of nodes needed for verification be determined? If other nodes or arbitrary nodes are put up as verifiers, how could the order be established? Does this procedure expose the network to possible dangers from a number of nodes?

· What procedure will the system embrace to rectify or correct any erroneous entry that may be recorded on the shared ledgers?

Asset representation:

To the extent an asset is represented on a Blockchain network, Operators will need to determine how those assets will be based on the community. Following are a few factors operators may want to take into account in the investigation.

Will assets be directly issued and digitally represented on The system? Or would they be issued in traditional form and subsequently tokenized on the community? Would the network consider both kinds of asset representation?

• If tokenized, what extra security dangers and complexities are posed? How would any loss or theft of the conventional off-chain advantage be managed? How would asset fluctuations (e.g., stock splits and conversions) be handled?

• Will the network only permit new advantage issuance or can it allow on-boarding of present assets?

How would money be represented on this network? Industry participants are contemplating a variety of versions to ease the cash aspect of a transaction settlement. For instance, in a recent effort, a few banks are tinkering to create a virtual “settlement coin.”

• If cash-backed settlement tokens are utilized, would these tokens be termed as virtual money? Could there likely be a scenario where multiple such native tokens are made by various networks or companies? In that case, are they tradable?

• If fiat money (i.e., money that’s created by the authorities of a country to be utilized as cash) is used and settlement happens off the system through a conventional cash payment process, how, when, and from whom will the trade and asset transfer be recorded on the network?

• How will a participant’s ability to fulfill the money obligation be determined? Can a deposit be accumulated from network participants to be utilised in the event of non-payment? How will this type of deposit be calculated?

Read more about Blockchain based capital market systems here.

Free version of Algorithmic Trading Platform for retail investors

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We have just released beta of Empirica – Algorithmic Trading Paltform for retail investors! It’s lifetime free for development, testing and optimizing of trading algorithms.

Our development team (exactly this team who implemented the entire system) also provides full support in algorithms development as well as connectivity to brokers. If you need help just contact us.

Among many features what is unique is our exchange simulation where you can influence market conditions under which you test your algorithms. No others software offers such a realistic level of simulation.

In paid versions we offer the execution of algorithms in robust server side architecture.

Download free version of Trade Pad at www.empirica.io. We strive for your feedback!

Algorithmic Trading Software

Three use cases of Smart Contracts in Financial services

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Savings and upsides from decreasing syndicated loans settlement time

While the High-Yield Bond transactions are settled in more than three days, the settlement interval for leveraged loans frequently extends to almost 20 days. This creates increased danger and a liquidity challenge from the leveraged loan market, hampering its growth and attractiveness.
Since 2008, the global loan market has witnessed negative gain, whereas the High-Yield Bond market grew by 11 percent. We assume that smart contracts can reduce the delay in procedures such as documentation, buyer and vendor affirmation and assignment arrangement, and KYC, AML and FATCA checks, with the assistance of a permissioned ledger. With estimation that with the decrease in settlement times, if the rise of loans may be at least half that of their High-Yield Bond market growth (i.e. between 5 percent and 6%), it would amount to an additional $149 billion of loan demand on the industry. Such loans generally carry 1% to  5% of fees, translating into extra income of $1.5 billion to $7.4 billion to investment banks. In addition, operational expenses, regulatory capital requirements and costs related to delayed compensation payments throughout the settlement of leveraged loans will probably be decreased together with the shortening of the settlement cycle.

Read more about basic idea behind Ethereum and Smart Contracts here.

Mortgage business to benefit from adoption of smart contracts

The mortgage loan process is dependent upon a intricate ecosystem for the origination, financing, and servicing of the mortgages, including costs and delays. Smart contracts could reduce the price and time involved in this process through automation, process redesign, shared access to electronic versions of bodily legal documents between trusted parties, and access to external sources of information such as land records.

Our earlier study on banks back-office automation suggests that mortgage lenders may expect savings between 6 percent and 15% from business $149 billion added leveraged loan volume increase with a reduction in settlement times 11 client fills mortgage application with earnings, taxation and property details Are property documents valid and lien status in order? Reject loan application and inform the client credit mortgage accounts article verification of earlier measures calculation of the cost savings possible from the usage of smart contracts in the US mortgage sector register bank’s lien on land signatures confirmed and mortgage accounts generated customer signs the mortgage document in addition to the witness mortgage record created approved rejected credit history id check KYC & AML check check income and land LTV reject program and notify the customer mortgage adviser creates loan workflow and updates credit, id, KYC, AML information in bank’s loan workflow for mortgage origination predicated on sale of 6.1 million houses of which 64% are being marketed on mortgage mortgage loan origination cost for an average loan of $200,000 in the US (2015), minimum savings US$ 4,349.5 17 billion 396.3 (9.1%) 1.5 billion 1,528.4 (35.1%) 6 billion. These numbers, coupled with our experience and discussions with industry experts, helped us estimate anticipated savings for each of the processes involved in loan origination. For example, in the US housing market, almost 6.1 million homes were sold in 2015. Based on historical averages, 64 percent of them were bought by home owners with a mortgage. We estimate that minimal savings of $1.5 billion could be achieved by loan providers through the automation of tasks in their organizations. Further, economies of $6 billion could be achieved once external partners such as credit scoring companies, land registry offices, and tax authorities become accessible over a blockchain to facilitate faster processing and reducing costs.

We also estimate that loan clients could expect a 11% To 22% drop in the entire price of mortgage processing fees billed to them if smart contracts are adopted. The total of outstanding mortgage loans across the united states and European Union countries in 2014 was valued at $20.98 trillion. Based on the US mortgage market case, smart contracts may possibly save between $3 billion and $11 billion in the new mortgage origination process across the US and EU.

Claims processing cost savings at the motor insurance industry

We consider that, in the motor vehicle insurance industry, smart Contracts that bring insurers, clients and third parties to a single platform Also, third-parties like chargers, transport providers and hospitals — once They are part of the dispersed ledger — will be able to supply faster Support against promises to clients and can anticipate quicker settlement of claims. The united kingdom motor insurance industry dropped 3.7 million claims and spent $13.3 Billion in claim expenses and costs. We calculate that roughly $1.67 Billion, or 12.5 percent of their overall costs, might be saved by adopting smart contracts. Dependent on the United Kingdom motor insurance market, we estimate that each year $21 billion could be spared from the global motor insurance industry via the Usage of smart contracts. A portion of savings can be passed on to the Clients via reduced premiums on motor insurance policies. We estimate that the Cost savings amounts to a reduction of $90 on average on each premium payment In the event the insurers pass on each of the savings generated from smart contracts Adoption to customers, and $45 per premium in the event the insurers decide to pass On only 50 percent of economies.

Who is moving FinTech forward in continental Europe? Thoughts after FinTech Forum on Tour.

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By Michal Rozanski, CEO at Empirica.

In the very centre of Canary Wharf, London’s financial district, in a brand new EY building, a very interesting FinTech conference took place – FinTech Forum on Tour. The invitation-only conference targeted the most interesting startups from the investment area (InvestTech) from mainland Europe. The event had representative stakeholders from the entire financial ecosystem. As Efi Pylarinou noted – the regulator, the incumbents, the insurgents, and investors, were all represented.

 

Empirica was invited to present its flagship product – Algorithmic Trading Platform, which is a tool professional investors use for building, testing and executing of algorithmic strategies. However, it was amazing to see what is happening in other areas of the investment industry. There were a lot of interesting presentations of companies transforming the FinTech industry in the areas of asset and wealth management, social trading and analytics.

 

The conference was opened with a keynote speech by Anna Wallace from FCA. Anna talked about the mission of FCA’s Innovation Hub; that is to promote innovation and competition in the financial technology field and to ensure that rules and regulations are respected. Whilst listening to Anna it became clear to me what the real advantage of London holds in the race to become the global FinTech capital – London has Wall Street, Silicon Valley and the Government in one place – and what’s most important, they cooperate trying to push things forward in one direction.

 

FinTech Forum on Tour

 

Robo-advisory

A short look at the companies presenting themselves at the event leads to the conclusion that the hottest sector of FinTech right now is robo-advisory. It’s so hot, that one of the panellists noted it’s getting harder and harder to differentiate for robo-advisory startups. On FinTech on Tour this sector was represented by AdviseOnly from Italy, In2experience,  Niiio, Vaamo and Fincite – all from Germany. Ralf Heim from Fincite presented an interesting toolkit ‘algo as a service’ and white label robo-advisory solutions. Marko Modsching from niiio revealed the motivation of retail customers, that “they do not want to be rich, they do not want to be poor”. Scalable Capital stressed the role of risk management in its offering of robo advisory services.

 

Social analysis/Sentiment/ Big Data

The social or sentiment analysis area, keeps growing and gains traction. Every day there’s more data and more trust in the results of backtesting as that data builds up over the years. The social media space is gaining ground. Investment funds as well as FinTech startups are finding new ways to use sentiment data for trading. And, it’s inseparably related with the analysis of huge amounts of data, so technically the systems behind it? are not trivial.

Anders Bally gave an interesting presentation about how to deal with sentiment data and showed  how his company Sentifi is identifying and ranking financial market influencers in social channels, and what they discuss.

Sentitrade showed its sentiment engine for opinion mining that is using proprietary sentiment indicator and trend reversal signals. Sentitrade is concentrated on German-speaking markets.

 

Asset management

From the area of asset management an interesting pitch was given by Cashboard, offering alternative asset classes and preparing now for a  huge TV marketing campaign . StockPluse showed how to combine information derived from social networks and base investment decisions on the overall sentiment. United Signals allows for social investing by making it possible to trade by copying transactions of chosen trading gurus with a proven track record, all in an automated way. And, finally BondIT, an Israeli company, presented tools for fixed income portfolio construction, optimization and rebalancing with use of algorithms.

 

Bitcoin and Blockchain

An interesting remark was given   by one of the panelist: ‘we have nearly scratched the surface for what blockchain technology can be applied to in financial industry’. Looking at the latest news reports that are saying that big financial institutions are heavily investing in blockchain startups and their own research in this field, there is definitely something in it.

A company from this sector of FinTech – Crypto Facilities, represented by its CEO Timo Schaefer, showed  the functionalities of its bitcoin derivatives trading platform.

 

Other fields

Hervé Bonazzi, CEO of Scaled Risk, presented its technologically advanced Big Data platform for financial institutions for risk management, compliance, analytics and fraud detection. Using Hadoop under the hood and low latency processing. Ambitious as it sounds.

Analysis of financial data for company  valuations, Valutico presented a tool that’s using big data, AI and swarm intelligence. Dorothee Fuhrmann from Prophis Technologies (UK) presented a generic tool for financial institutions to derive value and insights from data, interestingly describing indirect exposures and a hidden transmission mechanism.

Stephen Dubois showed  what Xignite (US) has to offer to financial institutions and other FinTech startups in the area of real-time and historical data that is stored in the cloud and accessible by proprietary API.

 Qumram, in an energetic presentation delivered by Mathias Wegmueller, described technology for recording online sessions on web, mobile and social channels, allowing for the analysis of user behaviour and strengthening internal security policy.

 

Conclusion

London is the place to be for FinTech startups. No city in Europe gives such possibilities. Tax deductions for investors. Direct help from the UK regulator FCA. Great choice of incubators and bootcamps for startups. No place gives such a kick. Maybe Silicon Valley is the best place for finding investor for a startup, maybe the Wall Street is the centre of the financial world, but London is the place that combines both the tech and the finance. It has a real chance of becoming the FinTech capital of the world.

 

About organizators

The people responsible for creating both a great and professional atmosphere at the event were Samarth Shekhar and Michael Mellinghoff. Michael was a great mentor of mine who transformed my pitch from a long and quite boring list of functionalities of our product to something that was bearable for the audience. Michael let me thank you once more for the time and energy you have devoted to Empirica’s pitch!

 

And because the FinTech scene in our region is not well organized yet, I sincerely advise all FinTech startups from Central and Eastern Europe to attend cyclic events of FinTech Forum in Frankfurt organized by Techfluence professionals!

 
Read about our Lessons learned from FinTech software projects.

 

 

FinTech Companies

 

 

 

Ethereum Becoming the New Platform for Startups

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Why is Ethereum bringing so many new startup businesses? Is Ethereum Becoming the New Platform for Startups?
The recent rise in value of Ethereum has flipped it to more than a billion dollar capitalization and next just to Bitcoin. Its worth is more than four occasions the worth of the third place crypto-currency, XRP. .

Ethereum was produced by Vitalik Buterin, a college dropout who although enthusiased from the potential for Bitcoin, felt that there may be a much better stage. Buterin, that has been compared to Steve Jobs, feels that his invention gives a strong platform for others to develop on and produce strong applications.

Buterin recently released his first production-ready version of Ethereum but even before this release, there had been a rush of startups to utilize the open platform and create blockchain based companies for new services and products, or to encouraging their existing companies.

“We’ve seen Microsoft and IBM doing projects on Ethereum. There’s a lot of coders. It’s fascinating to see something you were in on in the early phases growing and bearing fruit,” Anthony Di Iorio, one of Ethereum’s founders and a Chief Digital Officer at the Toronto Stock Exchange, said in an interview.

In 2015, there was a rush of venture capital into Bitcoin and Blockchain companies. This season, the potential and impact for Ethereum is seeing venture cash coming in especially targeted to Ethereum based startups.

Two leading venture capital companies, Boost VC, along with Blockchain Capital, are both taking a closer look at Ethereum companies.

Boost VC is obviously signaling their interest in Ethereum companies by stressing the cohesiveness of the developers and the powerful leadership exhibited by Buterin. Brock Pierce, founder of Blockchain Capital indicates that his firm is currently looking past Bitcoin for startups this year, stating, “you are likely to see that the usage of different blockchains beyond Bitcoin, such as these permissioned ledgers that a whole lot of financial institutions are interested in, but also even other people blockchains like Ethereum.”

One startup that has many people excited is Augur, that is constructing a prediction modeling system that is made on Ethereum.

Venture money is also moving towards Ethereum mining pools such as BTCS. Charles Allen, CEO of bitcoin mining outfit BTCS, noted that his firm recently constructed custom Ethereum mining rigs as part of a pilot program due to the escalating cost of ether.

Among the top crowdfunding sites for Blockchain related ventures is BnktotheFuture, which has helped to fund companies such as Factom and Bitpay, recently raised money for an Ether mining finance.

The billion dollar capitalization of Ethereum has clearly increased its profile and possibility of its currency, Ether as a powerful form of currency and investment.

We are guaranteed to see different startups and companies that will recognize this fact and provide investing abilities to exploit the possibility of Ether as a currency.

The growth and interest in Ethereum is making it clear that the conversation about cryptocurrencies can no more be limited to Bitcoin. As more startups and cash continue to chase the potential of Ethereum it is imperative that anybody following the electronic currency space needs to keep up to date to what is going on with Ethereum.

Ethereum is a open-source, public, blockchain-established distributed computing platform comprising intelligent contract (scripting) functionality. Ethereum additionally supplies a cryptocurrency token known as “ether”, which is transferred between accounts and utilized to compensate participant nodes for computations performed. “Gas”, an internal trade pricing mechanism, is utilized to mitigate spam and allocate resources on the network.

Ethereum becoming a top target for hackers

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Ethereum has become a top target for hackers.

The promising cryptocurrency that’s also a stage for decentralized software has dropped in value during the last six months (although it also had a serious drop in price in the past couple of months). But hacker attacks and theft of ether are very commonplace, and the last one is one of the worst so far.

An unknown hacker or a bunch of hackers exploited a vulnerability in the manner by that Parity, an Ethereum wallet, executed multi-sig wallets, stealing some 153,000 value of ether, which was valued around $32 million in the time of theft.

According to a security alert on the Parity blog dated July 19, the vulnerability was fixed, but “any user with resources in a multi-sig pocket made in Parity Wallet prior to 19/07/17 23:14:56 CEST,” was exposed to ether theft.

The thieving has indeed happened and it could be seen on Ethereum’s blockchain here. And additional funds were stolen from other companies such as Edgeless Casino and Aeternity.

A multi-sig wallet is a wallet which needs more than one touch for a task to be performed on its own contents. Users who had regular wallets on Parity were not in danger (incidentally, the author of this text has until recently held some ether at a Parity wallet, but maybe not a multi-sig one).

What makes this theft particularly troublesome is that Parity is among the most trusted pockets at the company. The business was founded by Gavin Wood, who’s also a co-founder of Ethereum and has composed the first implementation of Ethereum back in 2014. What’s more, it seems that no quantity of caution on the consumers’ side could have prevented the theft.

Those transactions can be viewed here. The group has promised to return the capital to their owners once the vulnerability is fixed.

His isn’t even the first ether theft this week. On Tuesday, a first coin offering (ICO) of an Ethereum-based startup called CoinDash went south as hackers managed to change the wallet speech on the project’s webpage, siphoning away more than $10 million value of ether.

To repair the harm, Ethereum’s management decided to create a tough fork in the software, undoing the theft but also splitting Ethereum to two separate cryptocoins: Ethereum and (today far less precious) Ethereum Classic.

 

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Ethereum is a system and programming language which makes it possible for any developer to construct and release next-generation decentralized software.  In summary: Ethereum is your internet, with no web servers. Ethereum may be used to codify, decentralize, protected and exchange just about anything: voting, domains, financial markets, crowdfunding, business governance, contracts and arrangements of most form, intellectual property, as well as wise property as a result of hardware integration.

Empirica has been nominated for Best Fintech Startup at CESA 2015

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Empirica has been nominated for the Best Fintech Startup in Poland at the CESA festival. CESA (Central European Startup Award) is the biggest no-pitch, no-conference start-up festival in the Central-Eastern European region. The festival brings together nearly 4.000 start-ups from 10 countries and it will be held in Vienna this year.

We are in good company, as other companies nominated in FinTech category are:

  • Zencard
  • Billon
  • WealthArc
  • our friends from FriendlyScore

The Central European Startup Awards is a series of events in the CEE countries, that aims to recognize and celebrate the entrepreneurial spirit and startup ecosystems of the region. This year eight categories will be awarded in:

  • Startup Of The Year
  • Best Investor
  • Best FinTech startup
  • Best Cloud/Data Application
  • Best User Experience
  • Best Social Impact Startup
  • Most Influential Woman
  • Best Coworking Space

 

CESA regognized FinTech as separate category this year reflecting that financial technologies are now the fastest growing technology sector worldwide. Incumbents in the financial industry – big banks and other financial institutions – are witnessing the emergence of new players that are profoundly changing the way individuals and business conduct their financial operations. Global investment in financial-technology (fintech) ventures tripled from $4.05 billion in 2013 to $12.2 billion in 2014, with Europe being the fastest growing region in the world, according to a report by Accenture.  Last year, fintech investment increased at more than three times the rate of overall venture capital investment. While it remains to be seen whether the burgeoning fintech industry will actually pose a threat to established institutions, it is clear that the sector is rapidly growing and many of these entrants are here to stay. Investors in the nascent sector are taking notice, profitable exits are on the horizon, and big banks are investing in new technologies to strengthen their competitive positions.

 

More on this year’s nominees:

http://centraleuropeanstartupawards.com/shortlisted-poland

cesawards-logo

FinTech. Lessons learned from over 5 years of financial technology software projects.

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By Michal Rozanski, CEO at Empirica.

 

Reading news about fintech we regularly see the big money inflow to new companies with a lot of potentially breakthrough ideas. But aside from the hype from the business side, there are sophisticated technical projects going on underneath. And for new fintech ideas to be successful, these projects have to end with the delivery of great software systems that scale and last. Because we have been building these kind of systems for the fintech area for over 5 years we want to share a bit of our experience.

 

fintech empirica

 

“Software is eating the world”. I believe these words by Marc Andreessen. And now the time has come for finance, as technology is transforming every corner of the financial sector. Algorithmic trading, which is our speciality, is a great example. Other examples include lending, payments, personal finance, crowdfunding, consumer banking and retail investments. Every part of the finance industry is experiencing rapid changes triggered by companies that propose new services with heavy use of software.
The best evidence that something is happening somewhere is to see where the money goes. Investments in fintech companies globally grew to $12 billion last year, which is a three times increase comparing to 2013, and five times during the last five years, according to the research reports by CBInsights.

If fintech relies on software, and there is so much money flowing into fintech projects, what should be looked for when making a fintech software project? Our outsourcing software projects for the fintech industry as well as building our own algorithmic trading platform has taught us a lot. Now we want to share our lessons learned from these projects.

 

1. The process – be agile.

Agile methodology is the essence of how software projects should be made. Short iterations. Frequent deliveries. Fast and constant feedback from users. Having a working product from early iterations, gives you the best understanding of where you are now, and where you should go.
It doesn’t matter if you outsource the team or build everything in-house; if your team is local or remote. Agile methodologies like Scrum or Kanban will help you build better software, lower the overall risk of the project and will help you show the business value sooner.

 

2. The team – hire the best.

A few words about productivity in software industry. The citation is from my favourite article by Robert Smallshire ‘Predictive Models of Development Teams and the Systems They Build’ : ‘… we know that on a small 10 000 line code base, the least productive developer will produce about 2000 lines of debugged and working code in a year, the most productive developer will produce about 29 000 lines of code in a year, and the typical (or average) developer will produce about 3200 lines of code in a year. Notice that the distribution is highly skewed toward the low productivity end, and the multiple between the typical and most productive developers corresponds to the fabled 10x programmer.’.
I don’t care what people say about lines of code as a metric of productivity. That’s only used here for illustration.
The skills of the people may not be that important when you are building relatively simple portals with some basic backend functionality. Or mobile apps. But if your business relies on sophisticated software for financial transactions processing, then the technical skills of those who build it make all the difference.

And this is the answer to the unasked question why we in Empirica are hiring only best developers.

We the tech founders tend to forget how important it is to have not only best developers but also the best specialists in the area which we want to market our product. If you are building an algo trading platform, you need quants. If you are building banking omnichannel system, you need bankers. Besides, especially in B2B world, you need someone who will speak to your customers in their language. Otherwise, your sales will suck.
And finally, unless you hire a subcontractor experienced in your industry, your developers will not understand the nuances of your area of finance.

 

3. The product – outsource or build in-house?

If you are seriously considering building a new team in-house, please read the points about performance and quality, and ask yourself the question – ‘Can I hire people who are able to build systems on required performance and stability levels?’. And these auxiliary questions – can you hire developers who really understand multithreading? Are you able to really check their abilities, hire them, and keep them with you? If yes, then you have a chance. If not, better go outsource.
And when deciding on outsourcing – do not outsource just to any IT company hoping they will take care. Find a company that makes systems similar to what you intend to build. Similar not only from a technical side but also from a business side.
Can outsourcing be made remotely without an unnecessary threat to the project? It depends on a few variables, but yes. Firstly, the skills mentioned above are crucial; not the place where people sleep. Secondly, there are many tools to help you make remote work as smooth as local work. Slack, trello, github, daily standups on Skype. Use it. Thirdly, find a team with proven experience in remote agile projects. And finally – the product owner will be the most important position for you to cover internally.

And one remark about a hidden cost of in-house development, inseparably related to the IT industry – staff turnover costs. Depending on the source of research, turnover rates for software developers are estimated at 25% to even 38%. That means that when constructing your in-house team, every fourth or even every third developer will not be with you in a year from now. Finding a good developer – takes months. Teaching a new developer and getting up to speed – another few months. When deciding on outsourcing, you are also outsourcing the cost and stress of staff turnover.

 

4. System’s performance.

For many fintech areas system’s performance is crucial. Not for all, but when it is important, it is really important. If you are building a lending portal, performance isn’t as crucial. Your customers are happy if they get a loan in a few days or weeks, so it doesn’t matter if their application is processed in 2 seconds or in 2 minutes. If you are building an algo trading operations or payments processing service, you measure time in milliseconds at best, but maybe even in nanoseconds. And then systems performance becomes a key input to the product map.
95% of developers don’t know how to program with performance in mind, because 95% of software projects don’t require these skills. Skills of thinking where bytes of memory go, when they will be cleaned up, which structure is more efficient for this kind of operation on this type of object. Or the nightmare of IT students – multithreading. I can count on my hands as to how many people I know who truly understand this topic.

 

5. Stability, quality and level of service.

Finance is all about the trust. And software in fintech usually processes financial transactions in someway.
Technology may change. Access channels may change. You may not have the word ‘bank’ in your company name, but you must have its level of service. No one in the world would allow someone to play with their money. Allowing the risk of technical failure may put you out of business. You don’t want to spare on technology. In the fintech sector there is no room for error.

You don’t achieve quality by putting 3 testers behind each developer. You achieve quality with processes of product development. And that’s what the next point is about.

 

6. The Dev Ops

The core idea behind DevOps is that the team is responsible for all the processes behind the development and continuous integration of the product. And it’s clear that agile processes and good development practices need frequent integrations. Non-functional requirements (stability and performance) need a lot of testing. All of this is an extra burden, requiring frequent builds and a lot of deployments on development and test machines. On top of that there are many functional requirements that need to be fulfilled and once built, kept tested and running.

On many larger projects the team is split into developers, testers, release managers and system administrators working in separate rooms. From a process perspective this is an unnecessary overhead. The good news is that this is more the bank’s way of doing business, rarely the fintech way. This separation of roles creates an artificial border when functionalities are complete from the developers’ point of view and when they are really done – tested, integrated, released, stable, ready for production. By putting all responsibilities in the hands of the project team you can achieve similar reliability and availability, with a faster time to the market. The team also communicates better and can focus its energy on the core business, rather than administration and firefighting.

There is a lot of savings in time and cost in automation. And there are a lot of things that can be automated. Our DevOps processes have matured with our product, and now they are our most precious assets.

 

7. The technology.

The range of technologies applied for fintech software projects can be as wide as for any other industry. What technology makes best fit for the project depends, well, on the project. Some projects are really simple such as mobile or web application without complicated backend logic behind the system. So here technology will not be a challenge. Generally speaking, fintech projects can be some of the most challenging projects in the world. Here technologies applied can be the difference between success and failure. Need to process 10K transaction per second with a mean latency under 1/10th ms. You will need a proven technology, probably need to resign from standard application servers, and write a lot of stuff from scratch, to control the latency on every level of critical path.

Mobile, web, desktop? This is more of a business decision than technical. Some say the desktop is dead. Not in trading. If you sit whole day in front of the computer and you need to refer to more than one monitor, forget the mobile or web. As for your iPhone? This can be used as an additional channel, when you go to a lunch, to briefly check if the situation is under control.

 

8. The Culture.

After all these points up till now, you have a talented team, working as a well-oiled mechanism with agile processes, who know what to do and how to do it. Now you need to keep the spirits high through the next months or years of the project.
And it takes more than a cool office, table tennis, play station or Friday parties to build the right culture. Culture is about shared values. Culture is about a common story. With our fintech products or services we are often going against big institutions. We are often trying to disrupt the way their business used to work. We are small and want to change the world, going to war with the big and the powerful. Doesn’t it look to you like another variation of David and Goliath story? Don’t smile, this is one of the most effective stories. It unifies people and makes them go in the same direction with the strong feeling of purpose, a mission. This is something many startups in other non fintech branches can’t offer. If you are building the 10th online grocery store in your city, what can you tell your people about the mission?

 

Final words

Fintech software projects are usually technologically challenging. But that is just a risk that needs to be properly addressed with the right people and processes or with the right outsourcing partner. You shouldn’t outsource the responsibility of taking care of your customers or finding the right market fit for your product. But technology is something you can usually outsource and even expect significant added value after finding the right technology partner.
At Empirica we have taken part in many challenging fintech projects, so learn our lessons, learn from others, learn your own and share it. This cycle of learning, doing and sharing will help the fintech community build great systems that change the rules of the game in the financial world!

 

 

New tendencies in Robo Advisory space

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In case you haven’t yet learned about the new robo financial advisor businesses (or digital counselors ), this should be the year you do. They are fast growing and gaining ample assets.

Based on a study by Corporate Penetration, from April 2014 to July 2015, the top robo-advisors — or automated investment services as many choose to be called — went from $115 billion to $21 billion assets under management

With these new companies bringing more investors and with all the business continuing to mature, there will undoubtedly be many changes that affect the robo-advisory market. Here’s that which we are prone to find in 2016 and beyond.

Legacy Firms Go Robo
As the robo-advisor industry grows it will continue to attract the attention of financial services companies that are established. These corporations desire to offer what their clients need — money management that is easy — while at precisely the same time bringing more funds to manage. Right now they’re losing dollars to the upstart robo-advisor companies under direction. Since the amount of money under management determines how much money firms can make, they will pay attention to the reason why they are losing out on new investment dollars.

Just previously year, Fidelity Investments, Charles Schwab Corp. and The Vanguard Group have either created their own digital services unit or partnered with an existing pureplay robo business.. You’re able to get the other large companies to join the trend.

Increased Kinds of Investment Options
They work by ensuring you’ve got the right asset allocation for your targets using index funds. A number of them subsequently additionally use tax loss harvesting as ways to improve yields.

Beyond their own original assumption of money management that is digital, robo-advisors will start offering options as a means to obtain a competitive advantage in a increasingly crowded market. You could possibly end up seeing matters such as portfolios according to different analytical strategies using beta that is intelligent and technical analysis. Businesses will use these investing alternatives in an attempt to make their services more appealing to those that desire to overcome and time the market but still do not want to manage their own portfolio.

The Flip Side
One trend that will probably coincide with robo-advisors’ evolution is lousy investment options. We have to be prepared to see existing companies or upstarts begin offering robo services at extremely high fees. We will also probably see this paired with awful investment choices which have fine print that is concealed and additional high fees that’ll lock customers into contracts

It’s no different with index funds that bill more than 10% for the same thing you can get for 006%.. Such funds continue to be in business because people get demanded by salespeople that are competitive to put their money there or they do not take the time to comprehend what makes a great investment. The sort of companies that run these funds may achieve success by trumpeting a trend and preying on consumers that are uneducated.

Mergers, Acquisitions and Closings

Depending on at, it’s projected there are about 200 robo-advisor companies out there, many which don’t have a lot of assets under management. Together with the area this packed, expect to find acquisitions closes and mergers. The rate of employee turnover in the marketplace might be fast given that robo-advisors tend to have smaller borders as a result of lower fees they charge. And when it comes to survival of the fittest, it’ll probably be problematic for independent robo-advisor to gain enough traction to make it on their own..

The consolidation is already occurring — BlackRock Inc. recently purchased Future Counselor and Northwestern Mutual Life Insurance purchased upstart online money supervisor LearnVest.

More Options for Private Guidance
Robo-advisors work nicely without important life changes on the horizon for clients and for individuals who don’t need added services such as estate planning. Robos choose all the stress out of obtaining the right asset allocation and investments; they are also maintained by them without an excessive amount of cost.

Nevertheless, as investors reach stages in their life where they want more advice that is personalized to work through choices — buying a property, saving for college or getting ready to retire — they’ll want access to more than simply a computer program

That is really where the robo-advisor firms will start to incorporate human counselors to help with matters that are more complicated. This may mean an increased fee to obtain a person that is dedicated adviser, or it can mean that one is paid for by customers as guidance that is more involved is needed. The natural evolution of the market’s can lead to conventional human advisors accentuating their practice by pairing up having a while label robo-advisor to offer the automated investment services ; premium services which demand a dedicated financial advisor may still be offered when needed
Robo-advisors are here to remain, but the services will continue to evolve to generally meet the demands of younger investors over the course of their life. For when they may be needed and more investment options, this includes services that are increased. With an increase in competition, you are going to see these matters become a large part of the mixture.