The Brookings Institution in Washington held a pretty interesting event on blockchain and bitcoin in capital markets last week, “Beyond bitcoin: The future of blockchain and disruptive financial technologies.” Speakers came from NASDAQ, R3, Digital Currency Group and other players. Here are some of the most compelling comments we heard.
(Note: panel participants were not the same as stated on the Brookings website. We cite individuals when they were clearly identified otherwise the source is anonymous.)
“This will be the year of Google, Microsoft, Apple… saying ‘we will build you a platform'”. One speaker said that as blockchain evolved, major companies would get involved. That wasn’t meant to be a “some day” kind of idea but a 2016 kind of idea.
“The value of bitcoin will grow with the ecosystem.” The value of individual bitcoins will grow as bitcoin and blockchain technologies become more advanced. If you want to buy into bitcoin companies as an investment, instead you can just buy bitcoins.
Barry Silbert, Founder and CEO of Digital Currency Group (and formerly founder and CEO of Second Markets, sold to NASDAQ in 2015), voiced some skepticism about the Linux Foundation, big banks, R3 and others getting together on blockchain protocols and coming up with a big success. We think there are similarities between the current blockchain consortium effort and the old battle of Omgeo (a combination of Thomson and DTCC) vs. the Global Straight-through Processing Association (GSTPA) on post-trades processing. Omgeo won that battle hands down. While financial market consortia have seen clear successes (Markit, EquiLend and others), there are many external factors at work in the case of blockchain. Participants in the Linux/bank/R3 effort will have to work smart and fast to demonstrate success as start-ups swirl around and go live with their own solutions.
That said, R3’s representative said that his group’s strategy was to build, buy or partner with whomever has the best solution. They will take on all good ideas.
Another speaker (we think he was NASDAQ’s CIO) mentioned the potential benefits of blockchain for collateral, securities lending and short selling, in that blockchain can ensure full utilization but not over-utilization (naked shorting) in the securities lending market. Blockchain would help with “an efficiency and productivity play that is profound.” It could help generate efficiencies in collateral management, something that we discussed in our September 2015 report on blockchain (“Can the Blockchain Work for Securities Finance, OTC Derivatives and Other Collateralized Transactions?“) “Its not exciting work, said the speaker, but its important.
There was the sentiment that Blockchain solutions could come from outside the financial services industry and cause profound change: “There is something coming from outside the industry that will make a great improvement.”
A speaker from Ripple noted that Blockchain is not a technology problem. The DTCC could go live tomorrow. “The value is not in building a network that everyone uses but in connecting the networks.” You don’t need blockchain to connect them and it is unlikely that blockchain is the right choice, but starting up the networks is critical. According to another speaker, “we could build a better Facebook but it wouldn’t matter because no one is on it.”
A panel on regulation highlighted the fear of regulators. That wasn’t as interesting – the panelists pretty much reiterated what has already been released and discussed publicly. Financial services is heavily regulated, perhaps the FSOC should take a leading role, US states have taken different approaches, etc.
Details about the event can be found on the Brookings website. The full webinar is available for replay.
