The Corporate Blockchain
Hundreds of financiers, Wall Street analysts, and C-suite executives gathered in New York City this week to peer into the future of finance at the CB Insights’ Future of Fintech conference. And on Wednesday afternoon, they took a moment to ponder one of the greatest existential threats to their industry—and how they might turn it to their advantage.
Attendees crammed into a standing-room-only session to hear about the role that blockchains would play in existing businesses. To many in finance, it’s a perplexing topic. After all, the Bitcoin blockchain was long ago predicted to render modern finance—and finacial firms—obsolete.
Instead, many financial firms have embraced blockchain technology, and even become rather bullish about it in the process. But companies have also found that preparing a blockchain to go live, and integrating it with existing systems, can be a daunting process.
Up on stage, and tasked with guiding the crowd through its mixed bag of emotions, were: Marley Gray, principal program manager for Microsoft’s Azure Blockchain Engineering; Joe Lubin, founder of the blockchain consulting firm ConsenSys; and Rumi Morales, executive director of CME Ventures, the investment arm of CME Group which manages the Chicago Mercantile Exchange.
Gray set the tone for the discussion from his vantage point at Microsoft, which offers a platform that it calls blockchain-as-a-service (BaaS) to help companies build their own blockchain-based networks and applications. As a result, Gray has seen how early experiments have fared across many industries.
“One of our goals was to make it ridiculously easy to roll [blockchains] out,” he said. “Now we’re at the next phase of—now I’ve got this blockchain, what do I do with it? So we’re kind of stuck on that piece right now.”
Many banks and stock exchanges are on the cusp of moving from pilots and proof-of-concepts to actual blockchain implementations. Morales, who has overseen her firm’s investments into Ripple and Digital Currency Group(which owns the cryptocurrency news site CoinDesk and has funded Coinbase, a trading service), suggested the industry is facing a moment of truth.
“Last year, we saw a number of companies announcing that they would be building things, or had a use case, for [the blockchain],” she said. “This is the year they need to prove that.”
There has been some progress on that front—in May, Nasdaq, Citi, and Chain revealed a blockchain-based payments system for private equity and earlier this week, IBM announced that it was building a system to manage trade finance with seven European banks that would go live by the end of the year.
But there’s a significant back-office bottleneck for people looking to deploy systems. Developers have a limited set of software tools at their disposal, and there is fierce competition for their talent. Consortiums, startups, and incumbents such as IBM and Microsoft are developing dozens of different ways to build blockchain-based networks and applications, without any reference architecture or standards to lean on.
This process can be frustrating, to say the least, said Morales. “For many people I know, they’ve moved on to pulling out their eyelashes because they’ve finished pulling out their hair,” she said. “It can be very painful.”
Even so, Morales and her fellow panelists were not keen on the idea of establishing comprehensive standards anytime soon. “I really think we’re going to have to be very, very specific about the definition of blockchain if we’re going to talk about standards,” she said.
Gray from Microsoft put it more bluntly. “It’s way too early for standards,” he said.
In the end, of course, the agony of blockchain development could very well result in big pay offs. For many, the thrill of the technology is its potential to overturn so many aspects of how business is done today. Throughout the week, I heard attendees and speakers batting around dozens of possible uses for blockchains in sessions and hallway meetings.
On stage, Lubin described one of his favorite projects at ConsenSys—a solar power system in which batteries automatically sell or buy extra juice through a blockchain, thereby improving the efficiency of the entire grid. “It prevents the need to spin up billion-dollar petrol plants to handle peak load in hot days in the summer,” he said.
And for every discussion of a practical use that has already been identified, there were countless mentions of the technology’s unexplored possibility. “It’s like trying to predict Facebook back in 1995,” Gray said. “Who would have known?”
While everyone else is dreaming about blockchain’s killer app, Gray believes the highest value of the technology will be to bridge industries and simplify all kinds of interactions across companies, individuals, public entities, and real-world events. “The true promise is ultimately getting to a place where we can have business contracts that weave together across verticals,” he said.
This also means that Gray expects the current industry-wide preference for permissioned blockchains—those which are cordoned off from public access—will eventually erode. Instead, he thinks society will gradually embrace the power and functionality of decentralized, public chains, such as the one that underlies Bitcoin.
First, though, public blockchains must prove that they can scale up to handle millions upon millions of transactions every day. Currently, no public blockchains could do this, said Lubin.
Looking ahead, Lubin expects both public and private blockchains to evolve over a long development period that has only just begun. “Blockchains in two, five, and 10 years from now are going to look completely different,” he said.
For all the work ahead, many speakers and attendees at the conference remained optimistic—and at times, positively upbeat—about the future of blockchain technology. For the finance industry, the promise of reducing costs, settling trades, and streamlining transactions is particularly intoxicating. “That gain is hopefully going to be worth the pain,” Morales said.