The world is still very confused about bitcoin. For example, some press are still writing the old stories about the phenomena as an investment: Man buys $27 of bitcoin, forgets about them, finds they’re now worth $886k. It makes for a good headline, but reinforces the view that bitcoin is just some basketcase currency, rather than a currency that should put into a basket of currencies. This will change. In fact, some banks are already starting to say bitcoin good, blockchain good, rather than bitcoin bad, blockchain good.
Image from Followmyvote
On this note, there’s a really interesting commentary from Deutsche Bank, with a research note released this week called:
In the note, analyst Heike Mai notes that “the original idea of bitcoin – to create a peer-to-peer scheme that is independent of intermediaries and central agents – is to some degree being overhauled by real life. The bitcoin ecosystem now includes a number of financial intermediaries, like wallet providers and exchanges, and these show a trend towards concentration.”
You can read the whole research note (download).
All this in the same week as Satoshi Nakamoto has been identified as an Australian academic called Craig Steven Wright, or is he? Some say that Mr. Wright was part of an extortion scheme. We shall see, but it seems to me that Satoshi is still to be found, and Cornell Professor Emin Gün Sirer kind of tells us as it is: who cares?
Anyways, attending a discussion about blockchain and bitcoin earlier this week, I heard the simplest summary of what it’s all about. bitcoin is a currency, a method of value exchange and a smart way to record contracts. As a technology it is good at these three things, and that’s what we should focus upon. For banks, the permissioned and shared ledger structures enabled by bitcoin technology to provide value exchange and smart contracts is what the whole financial system has woken up to, which is why we talk about blockchain more than bitcoin. Private ledgers enable banks to exchange value in a trusted shared network, and that network can be backed by USD, EUR or RMB, no bitcoin required.
The ‘no bitcoin required’ systems are all based upon private shared structures, and the key to this is to remember that word shared. No blockchain development has value in the financial system unless it’s shared by a critical mass of people. Hence R3 is interesting, with Sberbank being the latest bank wanting to join the global consortium of 30 banks and financial institutions. Even SWIFT is finally making commitments to blockchain developments, so these things are moving fast. Meantime, I remember thinking when UBS announced a Settlement Coin on the blockchain that it would go nowhere unless other banks committed. UBS has now designated ownership of the coin to Clearmatics, who are trying to create an R3 for post-trade markets, so these things are moving fast.
In fact some would say, and I’m one of the them, that 2015 has been all about the blockchain. It’ll be interesting to see what 2016 is all about. More about that next week but, in the meantime, there’s a fairly useful summary of all things blockchain 2015 over on Forbes.
Who ever said it would take another 10 or 20 years to morph into something tangible in banking? It’s all happening apace…