Disruption on the Prairie: The State of Blockchain in 2016

There is no question that blockchain is big: over $1 billion has been invested in blockchain firms to date and industry giants such as JP Morgan, NASDAQ, and Linux have gotten behind the innovative technology in big ways. But, just as little is known about Satoshi Nakamoto, the mysterious creator of blockchain, the future of this technology is a bit of a mystery as well. While the popular consensus is that 2015 was the year that financial services took notice of blockchain and that 2016 will be the year when it takes off, the true state of affairs is not so simple. This was on sharp display at The Mankoff Company’s “Disruptive Innovation: Blockchain” event in Chicago on February 24. Panel members from PWC, FIX, Geopay.me, Symbiont, and TD Bank were representative of many of the themes and trends that are prevalent in blockchain today.

Robert Musiala is a manager for PriceWaterhouseCoopers Advisory Services and he described how his group at PWC first got involved with Bitcoin because of fraud. In 2012, one of their clients found out that their products were being counterfeited and payment was being made in Bitcoin. This naturally led to an early skepticism about Bitcoin and they expected that it would be hacked or problems would arise with counterfeiting. As these problems failed to materialize and they learned more and more about how Bitcoin and blockchain worked, he became a convert and now sees myriad applications for the technology. Areas of application vary from clearing and settlement to international remittances and even beyond to situations like land registries, international trade such as bills of lading, and personal healthcare information. The opportunities are virtually endless and only need time to develop.

An institutional perspective came from Ryan Pierce of CME Group. Pierce spoke as a member of the FIX Digital Currency / Blockchain Working Group, which has between 75 and 100 member firms that are working to establish standards for blockchain in the FIX protocol. Normally, one would expect such a working group to be the death knell of innovation, particularly when it is composed of 100 or so firms, but in this case the opposite may well be true. The existence of the Working Group is a validation of the power of blockchain as a viable concept because the standards that they agree upon will hasten the adoption of blockchain into all manner of financial transactions. Pierce himself came off as a strong and enthusiastic supporter of blockchain, enumerating multiple examples of how blockchain can improve existing functions such as audit, compliance, and info sec.

John Karantonis of Geopay.me had perhaps the deepest and most technical understanding of blockchain out of anyone else on the panel and the direction that he is setting for Geopay highlights the split between public blockchain, such as Bitcoin, and private blockchain as embodied in efforts by R3 and others. Geopay is pursuing the former and is doing so at least in part because the technology promises to bring such great benefits to underserved parts of the world, primarily by lowering the high cost of payment processing and asset transfer. Karantonis is one who seems to be interested in doing well by doing good.

Symbiont is an example of a firm that is taking blockchain out of the ether and applying it to the real world. With the development of Smart Securities, which is envisioned as an ideal platform for corporate debt, syndicated loans, securitized instruments and private equity, Symbiont claims to be the first to issue a private blockchain transaction. Louis Stone represented Symbiont on the panel and he made the strong case that the timing is right for blockchain as the financial services industry looks to lower costs in the face of higher regulation and a shrinking ability to utilize their balance sheet. At the heart of it, the fundamental value of the blockchain and smart contracts is to bring sellers, particularly issuers, and buyers closer together.

In the face of all this good news, Jennifer Rodrigues of TD Bank injected a little reality into the picture. TD Bank is a supporter of the concept of blockchain and, to that end, they have already devised and executed a number of internal POCs. However, they are now facing the internal political reality of complex issues with existing systems and processes. As a result, they have reoriented and are now taking a more top-down approach and it may be that future change and growth will come through acquisitions and partnerships. The key take-away is that all of this will take time, despite the long term promise and upside.

In the end, where does this all lead? To quote the 1967 Buffalo Springfield song, “For What It’s Worth”: “Something’s happening here, what it is ain’t exactly clear”. We can expect that things will become more clear as 2016 progresses but the revolutionary concept of the blockchain is likely to mutate and reverberate for many years to come. These are still early days.