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| Big Name Banking and Technology Businesses have invested in developing blockchain applications. In the financial industry, blockchain is treated as an emerging tech and a potential major disruptor in contracts and settlements. Bitcoin blockchain is the best demonstration of a secure distributed ledger. |
Introduction
"Go forth and multiply.."
The first altcoins to bitcoins appeared on 2011. In the preceding post we saw the rise of cryptocurrencies and the next wave cryptocurrency platform. In this article we explore developments in the major mainstream adopters of blockchain applications – the financial industry.
Poor Bitcoin (a paradoxical way to describe an asset with a market cap of 7 billion), has never received a (publicly) rousing welcome from the “fiat” based global financial industry. But the open source, paradigm shifting, “libertarian favorite" and "upstart" cryptocurrency is going on nevertheless, thanks to a whole new start-up ecosystem that has built the Bitcoin economy and given birth to a crypto application industry.
This latter concept, a crypto industry, is another way to define blockchain applications, which, since 2015, seem to have found applications everywhere, across industries as diverse as healthcare, energy and finance.
Somewhat like chickens coming home to roost (in a good way), leading names in Big Finance and Big Tech have become the most vocal proponents of block chain financial industry and technology industry, investing efforts and cash in exploring new use cases for innovative uses of the block chain, albeit without Bitcoin in the picture.
Blockchain Revelations from Bitcoin
Bitcoin is the tipping point for cryto based security applications, that Nick Sbazo and others envisioned as early as 1997, as a way to enforce trust in contractual transactions concerning tangible economic value between faceless participants and an equally anonymous “trusted” intermediary on a globally distributed public infrastructure of the Internet. The Bitcoin blockchain is the pioneer and demonstrated proof of such as application which has enabled others to follow suit.
So what has been revealed in six years of Bitcoin? The Bitcoin blockchain has never been hacked. Transactions confirm in minutes. The transaction token itself (bitcoins, altcoins) becomes a usable store of value. Bitcoins and altcoins are now used as currency and commodity asset classes.
Angel investors, technology innovators and venture capitalists are backing developments in Bitcoin and blockchain.
Big businesses are following suit for blockchain technology in part from foreseeing revolutionary value of the blockchain, in part to ride the next big technology “wave” and become an early adopter.
Banking and Technology Approach to Blockchain Applications
Its early days since big brand financial institutions (read global banks) have started exploring blockchain applications as an emerging technology. The overall process that the industry has followed is to jump start blockchain applications with collaborative and incremental investments on cryptocurrency 2.0 start-ups such as R3, Digital Asset Holdings and Ripple. To accelerate development and innovation, mixed model of open innovation (open source applications, providing application developer tools) in combination with industry sponsorship (banks, tech industry consortia) has been adopted.
A Timeline of Events – Big Finance and Blockchain circa 2015
Blockchain startup R3CEV LLC (R3) is spearheading the foundation of blockchain framework for the banking industry. R3 can be called a blockchain entity (maybe an eventual blockchain platform) which is focusing on blockchain use cases for smart contracts and settlements. In September 2015, a consortium of 9 global banks came together to build and test a distributed ledger technology. By November 2015, this number rose to 30 and 42 towards year end. First tests between sub-groups of this consortia have been running since January which have consisted of simulating transactions using crypto tokens in a permissioned block chain developed on Ethereum.
R3 is also heading Global Collaborative Labs, an umbrella that allows emerging blockchain platforms apart from Ethereum to create prototype applications and run trials with industry participants. In March 2016, R3 announced that five blockchain cloud platforms were tested including Ethereum, solutions from IBM and Intel and hosted on IBM and Microsoft Azure cloud services.
IBM is adopting its mixed open source, shared, run on IBM cloud model that it has applied to its industry solutions such as Watson and Big Blue. While R3 is using Ethereum, IBM has partnered with Digital Asset Holding, a blockchain platform company that has moved its distributed ledger platform, called Hyperledger to the Linux Foundation. While R3 is a banking led consortia, Hyperledger is similarly made up of 30 founding companies, including R3, some of its consortia members such as JP Morgan and a mix of technology consulting companies including IBM and Accenture.
Big banking names are also in an accelerated patent filing mode. Bank of America has chalked up between 20-30 patents, covering apparently a whole cryptocurrency ecosystem from wallets to exchange, transaction confirmation etc. Since Bitcoin is open source, it remains to be seen if BoA patents are related to a new technology, a process, a trademark or something else. J P Morgan, an early mainstream competition to Bitcoin, tried to unsuccessfully patent a blockchain version in 2013. Goldman Sachs has filed a patent for SETLcoin, its propreitary token for a settlements blockchain.
The patent war while a common competitive process where industry innovation is concerned, signals that whatever banks view of the blockchain, there is little readiness to adopt a public decentralized model that Bitcoin has demonstrated so well. It reveals the extent to which some elements of the block chain will be used, while real industry disruption features may eventually be ignored or abandoned by established players that may view trustless decentralized systems as a threat.
Other industries such as insurance or energy or emerging market may well become those who build truly disruptive crypto applications. We will explore this and the blockchain versus Bitcoin debate in subsequent posts in this series.
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