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Blythe Masters, Inventor of the Credit Default Swap Believes Bitcoin Can Save Banks & Society Billions

Picture credit: Thierry Ehrmann

Blythe Masters is a genius economic engineer.

She began her career studying at the University of Cambridge and then quickly joined JP Morgan Chase. Her education made her an expert on risk. Her talent turned her education into genius. She invented a quick way for banks to handle risk with insurance, ensuring internal resilience for JP Morgan’s systems.

Risk is the chance that a transaction will not be completed. Each of us, as institutional entities, interact with the financial web where we build a reputation. When you settle your debts quickly, you become a trusted actor. When you don’t pay your debts quickly or efficiently, you are high risk.

The equation of risk takes into account the time it takes for a transaction to settle. The more time it takes, the greater the risk. The chances of you defaulting are regularly calculated based on an infinite number of data points calculated by computer software. When collections of these debts are bundled together, the risk is spread across the whole portfolio. Now, imagine, you want to take out insurance that the loans will be paid back.

You’d pay a premium for that insurance, right?

This way of managing risk, in a nutshell, is the credit default swap. Blythe Masters designed them at JP Morgan Chase in a career marked by innovation. Today, JP Morgan is known for managing risk well. While other banks failed from mismanaging risk up to the 2008 crisis, JP Morgan continues to lead. Why? Well, Masters knows how to create tools that work and knows how to wield them well. This ability frees up internal bank capital to be used elsewhere in the institution, which in turn flows into the larger economy as a whole.

However, Masters was ridiculed as “The Woman Who Built Financial Weapons of Mass Destruction”  This statement is like saying whoever invented the knife is responsible for all murders caused by knives , while discounting all the nourishing meals that knives help us create. After the dust had settled with the 2008 crisis, Masters thought of ways to undo the damage done by those who had used her tools for evil at less than stellar banks. Naturally, as an economic engineer, she turned to technology to explore these solutions in depth.

Cutting red tape in transactions could free up large amounts of capital for banks to make more loans to society as a whole, open more markets, and create transparency in a largely darkened part of institutional dealing. Instead of transactions marked by slowness of 20 business days, an institution can settle accounts within 10 minutes with previously unknown entities. Can you imagine all the lawyers and escrow services that will no longer be in business?

Blockchain technology, upon which Bitcoin is built, programs trust into the transaction

Like email was to the postal service, so is Bitcoin for the financial system. Masters, after researching this in depth, now runs a firm to create the products banks need to use this technology internally. Now, the tools that Masters and her team create will free up capital more quickly and be used without as much risk.

Instead of mastering risk, banks can focus on performing the function they were mainly created to perform by dispersing money like hearts pumping capital into the arteries of society. Making investments more efficient, quick, and laying out the landscape changes everything for sophisticated actors like banks but also for the average person. Blythe Masters now works to create a stronger immune system for financial markets through distributed technology based on the Internet of finance as Bitcoin. Technology allows us to move into a more collaborative system with incredible resilience through transparency.

The Digital Asset platform uses distributed ledger technology

It allows the mutualization of financial market infrastructure across distinct market participants. It does this while maintaining confidentiality and scalability, both vital for large, regulated markets. The DA Platform eliminates discrepancies between disparate but duplicative siloed data records, reducing the current errors, latency, risk, cost and capital requirements involved in processing financial transactions. Participants in the Platform share a single source of truth which provides continuous data integrity, any desired or mandated degree of transparency and the opportunity for rapid innovation.

The above is an excerpt from the non-technical white paper. You can read it in full here.

Bitcoin’s Disruption: Conflicting Opinions

Acknowledging the Disruption of Bitcoin

Since Bitcoin’s creation in 2009, financial professionals have considered the new technology a threat to financial services.  The financial services industry moves, trades, stores, lends, and accounts for money.  In an article published by McKinsey and Co. Don Tapscott points out that each of these practices are challenged by Blockchain technology.  Tapscott was not alone in recognizing Bitcoin as potentially disruptive to financial services.  As visualized on the below Google Trends graph, Bitcoin attention has spiked since 2013.


The disruptive nature of Bitcoin spurred public attention.  From 2013 to the present, major consulting firms such as Deloitte and McKinsey have issued reports on Bitcoin’s disruptive nature, with specific interest in the underlying Blockchain technology. Financial firms, such as Goldman Sachs and Morgan Stanley, are seeking to understand Bitcoin and employ tools such as the Blockchain, which is evidenced by their reports over the same period.

The consensus remains that Bitcoin is a potentially disruptive force. The effect of Bitcoin, and in particular Blockchain technology, may extend beyond the financial services industry.  This article examines professional, conflicting opinions regarding this disruptive reality.

Professional Opinions on Bitcoin Disruption

Paul Krugman: In December 2013, Paul Krugman wrote an article for the New York Times, “Bitcoin is Evil.” In his piece, his first qualm with Bitcoin is that it fails as a store of value.  Unlike gold or USD, it has no floor of value.  This criticism alone seems insufficient to label Bitcoin “evil,” but he proceeds to identify Bitcoin disruption as a threat to infrastructure, using a quote from Charlie Stross.

“Bitcoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind- to damage states ability to collect and monitor their citizens’ financial transactions.”

Krugman’s critique of Bitcoin technology is understandable, particularly in the wake of the Silk Road, which shed light on horrible illegal transactions, facilitated through the use of Bitcoin.  However, I believe he overlooks the benefits associated with the efficiency of a decentralized system.

Blythe Masters: The decentralized nature of Bitcoin that Krugman dislikes has inspired confidence and investment from Blythe Masters, economist and former executive of JPMorgan Chase.  Masters, recognized as a developer of credit default swaps, has invested time and money into the development and re-purposing of Blockchain technologies.  In a 2015 interview, she highlighted Blockchain technology’s ability to reduce risk as a motivator for her transition into the FinTech industry.  Her faith in Blockchain technology led her to acquire the CEO position at Digital Asset Holdings, a Blockchain technology company providing settlement and ledger services.  Master’s faith has not been misplaced.  Digital Asset Holdings opened a London office in January 2016, and hired eight new executives as of August 2016.