This past Monday I went to Distributed Markets here in Atlanta and led a panel discussion on Debt Markets and P2P Lending. The theme of the conference was the use of blockchain technology by financial services companies.
I thought I’d share with you what I’ve learned there.
Everyone is excited about the potential of the technology. They also know it’s a buzzword being used by some companies when they really just need more advanced & updated databases specifically, or better technology in general.
There were 3 tracks: Capital Markets, Payments, and Digital Assets & Insurance.
Sandra Ro of the CME Group, parent of the Chicago Mercantile Exchange, gave the morning keynote discussing some exciting trends in the industry. The Merc has digitized the metals market already so you can trade gold and silver digitally with a token. It’s pretty cool. Just on the settlement and clearing of US securities transactions, which now takes 3 days, Sandra believes this one application alone can save banks and brokerages $54 billion dollars a year once implemented using this technology.
Which Environment is best?
With blockchain for finance as the theme, there was lots of discussion about what way is best to set up the underlying technology to be successful. There are currently 3 different environments where blockchains are being developed for commercial use by financial companies. They are:
The public chain out there with the biggest potential for financial services is Ethereum. Ethereum is built specifically for firms to build applications on top of its chain. That’s why it exists. I have more on Ethereum later in this post.
But what about Bitcoin? That’s a public blockchain too. It’s the first and leading one.
If you read this blog then you know I am long Bitcoin. I love its potential. However, its blockchain is messy (the techies tell me) and not suitable for building apps on top of it. The one use of Bitcoin’s chain that I did hear a little bit about at this conference that makes sense in this context is the use of Sidechains.
A sidechain is its own little chain that does its thing and hooks up with the Bitcoin blockchain just to date/timestamp the blocks. This has potential but not as much as Ethereum. Bitcoin has other uses and those like me who are fellow longs have no reason to be dissuaded by the fact that it’s not a great solution for financial companies to implement.
Private or permissioned blockchains are all the rage with companies. The reasoning behind this makes sense when you think about it. A bank says to itself well if we have a Barclays Bank office in London, one in Singapore and one in Hong Kong and they all have to coordinate to make a deal or investment for a client, there is already some level of trust between people in these offices since all of them are a part of Barclays.
And most importantly, blockchains work best and are most effective in low trust environments. A bank will have some trust among colleagues at the same global bank.
A consortium based blockchain is the idea that numerous members of a group share the cost, time, talent, and intellectual property to build a chain together. This was a huge topic at the conference.
And yes, consortia is the plural for more than one consortium......
The R3 consortium is an example although they’ve been in the news quite a bit this week. The Merkle discusses how the banks in the R3 consortium are now considering multiple options including a more updated and secure software layer on top of their existing legacy systems. The Merkle is calling it a defeat for blockchain technology, but we’ll see if that’s actually true or not. The consortium is still operating. R3 was still a big topic at Distributed Markets on the Capital Markets track (one of the 3 tracks) and was mentioned more than once in my panel discussion by the panelists and audience questions.
One example is 47 banks combined forces to work with distributed ledger tech on the Ripple network. Ripple is designed as a payment solution and this test was to show how one Asian bank can send funds to another across the network without the use of the international SWIFT standard. Big savings and cuts out the fees from US banks.
Another example which was announced at the conference is the Enterprise Ethereum Alliance. This alliance of mostly banks is set up to share the costs of acquiring and developing the talent necessary to use Ethereum for its primary purpose, building blockchain applications on top of it. For us non-technologists, this means that Ethereum is set up more like an operating system just like how software had to be compatible with Windows to run on PCs years ago.
Hyperledger is another consortium based chain project. This project is Linux backed and some central banks like the Bank of England are backing this project. Insurers, tech companies, and even Daimler-Benz are involved in this project. Startup Monax who is a member of the Enterprise Ethereum Alliance, is a member of Hyperledger as well and helping to bring Ethereum’s technology to the project.
Ripple, Enterprise Ethereum, R3, and Hyperledger were all discussed widely at the conference. Brian Behlendorf of Hyperledger was one of the afternoon fireside chats and had some great insights on the developments, successes, and challenges of building a consortium based technology.
Other great industry leaders speaking
Distributed Markets was full of great speakers and panelists. Charlie Shrem was there with his new business Intellisys Capital to use blockchain technologies to decentralize investment into private equity through his firm. I’m particularly interested to see where this goes as tokens have great potential in providing a secondary and liquid market for asset holders.
Jeff Garzik and Matthew Roszak of Bloq gave a good talk on enterprise systems and how some banks are looking for something more like an ‘out of the box solution’ for their blockchain needs. They also acquired a company called Skry, which they announced at the show.
BitPay CEO Tony Gallippi and Stellar CEO Jed McCaleb each gave a good talk on payment processing and payment networks in the afternoon. Their sophisticated solutions are very streamlined and user-friendly.
There were great speakers on the other two tracks that I didn’t get to see but I wish I had like attorney Carol Van Cleef, Justin Newton of Netki, and speakers on subjects like security, digital assets, smart contracts (a big topic), banking infrastructure and treasury management.
This conference was fantastic and David Bailey and the BTC Media team should be really proud of themselves and what they put together in Atlanta. I’m looking forward to their next conference and this show next year.