It didn’t take long for the smart money to anoint the blockchain as the next big thing. Or did it?
The blockchain as we know it is the distributed ledger for Bitcoin. Public and professional reaction to Bitcoin has run hot and cold over the years as the cryptocurrency has been put to illicit use and its value has fluctuated wildly.
Blockchain, however, has been embraced by a population that couldn’t be more different from that of the Bitcoin Wild West: financial technologists. These are not the people who engineered the incomprehensible derivatives that brought on the global financial crisis. They are more interested in transaction work flows and “plumbing,” and they see in the blockchain potential cost efficiencies and risk reductions that are beyond the capabilities of existing, legacy market infrastructures.
As reasonable as that sounds, it is mainly a 2015 phenomenon. The awakening to blockchain has been that quick. That may reflect well on banks’ and other historically conservative financial services companies’ receptivity to breakthrough technology. But such conditions also breed excess hype, as did the Internet not too many years ago, and a sanity check may be in order.
“The first time I heard about the blockchain, it reminded me of when I heard about a company in New Jersey that was doing electronic trading in ways nobody had done before — the feeling that something was fundamentally changing,” Cristóbal Conde recalls. It was the 1990s, and Conde, then running SunGard Data Systems’ trading group, took a more than passing interest in the pioneering day-trading brokerage Datek Online Holdings.
It became a cautionary tale that Conde prefers not to see repeated with blockchain. Although Datek’s technology lived on — it was acquired by what is now TD Ameritrade, and Datek-controlled Island ECN went to Instinet and later Nasdaq — the brokerage business had multiple run-ins with regulators. “Imagine what it could have been if they were legit,” says Conde, who was SunGard’s CEO from 2002 to 2011 and today is an active fintech investor, mentor to start-ups and adviser to private equity and venture capital funds.
He is convinced that blockchain is big. It can be “the new TCP/IP underlying financial transactions,” Conde says, referring to the basic protocols that, once widely accepted, allowed the Internet to flourish. “We just need agreement on some standards, and [blockchain] will be off to the races.”
Conde has a bet down: He is a director of Digital Asset Holdings, a blockchain development company formed last year by Sunil Hirani, who previously co-founded the Creditex and trueEX derivatives platforms, and Donald Wilson, CEO of Chicago-based DRW Trading Group.
Whatever Hirani and Wilson’s star power may be, they multiplied it in March with the arrival of Blythe Masters as CEO. The charismatic longtime JPMorgan Chase & Co. executive became a media magnet as she touted DAH’s plans to bring distributed ledger technology into institutional finance. By the time Masters landed on the cover of the October edition of Bloomberg Markets, however, others were hogging the limelight — notably, R3 CEV, led by ex–ICAP executive David Rutter, which has signed 22 major banks for what it calls “its partnership to design and apply distributed ledger technologies to global financial markets.”
Meanwhile, Chain is working closely with Nasdaq and has financial backing from Nasdaq, Capital One Financial, Visa and others; online retailer Overstock.com has put forward a secure transaction platform called tØ; and Symbiont, funded by, among others, former NYSE Euronext chief executive Duncan Niederauer and Getco co-founders Stephen Schuler and Dan Tierney, has demonstrated “smart securities” issuance on the blockchain. And more are vying for attention and venture capital.
Sizing up blockchain from the investor point of view, and not discounting its longer-term prospects, Venrock partner Nick Beim deemed it “excitement and hype far ahead of actual applications.” He was speaking at the Economist’s Buttonwood conference in New York on October 20, where none other than DAH’s Masters also paused to reflect. She described blockchain as “new database technology that is not deployed at scale yet” but added, “It will be commonplace in the next ten years.”
Let the competition begin.