As more and more banks & VC’s start investing in Bitcoin and ever more the Blockchain it seems this almost nursery school age technology is destined to play an ever greater and more influential role in the future of finance. It is being breathlessly lauded as the potential destroyer of almost every complex process of today around the transferral of goods, services, documents, IP, identity, contracts, laws, house ownership etc. etc.
I have not really written anything about Bitcoin or Blockchains before but someone asked me recently what I thought about them. I have to admit I have not put in the time to really understand the mathematics behind The Blockchain. My almost A Level standard maths studies at college and university fell apart around plotting 3D sine waves. I never studied cryptography. I am however fascinated by the fact the technology behind the Blockchain has seemingly solved the problems around transferral of ‘digital assets’. Cryptographic proof of transfer, units of work distributed across a network, the ledger of those transfers open to all. It sounds great.
I also never studied economics so I can’t tell if the Blockchain relates well to some age old theory that economists seem to like. ‘It is just like fractional reserve banking’ or something something gold standard. No idea.
The thing that interests me most about it is its openness. The fact that this has allowed a sizeable ecosystem of businesses and applications to build up around it in such a short period of time. This is also seemingly the one thing none of these keen investors are interested in. I haven’t done an MBA either so I know nothing about business models really but I believe that open and lots of funding from VC’s/banks don’t really go hand in hand.
I liked Fred Wilson’s comment that it could become a protocol like the foundation of the Internet. Will the development around the blockchain mean that good enough beats over prescribed just has it has done in the past with the likes of TCP/IP vs OSI. I am watching the W3C Web Payments group with interest but I feel it is going to be a very difficult challenge to supplant the existing rails/work with them well enough to make everyone happy. We are headed for another set of silos surely? I do hope not.
I also like what companies such as Eris are building. Blockchains without the Bitcoins. Build your own. It is just a database at the end of the day (and apparently has something to do with marmots). In fact everywhere you turn there is something new. Some reimagining of something old but in a new time. The Elements Project being another interesting avenue of investigation/work. The openness just allows people to build and therefore we might see some age old problems, that the exisiting rails just can’t technically or economically support, finally become a reality e.g. do blockchains/sidechains allow micropayments to move closer to viability?
It feels like it has further potential to be the basis for real changes to the financial rails. The complex back office processes required to facilitate the movement of assets and traded goods feels particularly ripe for improvement. This seems to be where the bulk of the investment from banks is focusing.
Maybe some companies or industries will create their own ledgers and currencies for specific types of trade. Again a rich angle of investigation. But I do wonder about the what if they did some of this experimentation in he open? Made a public ledger of an exisiting trade flow? Allow others to access all that information? Build upon it?
What this openness and high speed evolution and creation has done is chipped away at the rules and regulations and made people in governments believe their may be a better way. Where once the view might have been this will definitely be regulated out of existence it is now clear that some countries will do the very opposite. It is also driving the debate about opening up the networks further. Midata v2 / standardised banking APIs loom large in the UK. Payments Service Directive 2 (the revenge) includes some great stuff around access to account for third parties to gain a foothold / build an ecosystem upon.
Will all this investment bring further innovation, smooth the edges and bring about the manufactured normalcy field to make Blockchains and crypto currencies more understandable / accessible to mainstream users? Or will the more protocol like nature mean it will merge into the vapours of the cloud and become another strand of plumbing few need to truly understand.
For me the key point is the open nature of Bitcoin and it’s by product the Blockchain is the thing that make it great. I would like to see more investment from banks to build things in the open / for others to build upon freely and see where it takes us. Not sure capitalism works like that but we shall see.
From my lofty position of having pretty much zero education in the relevant technical / economic areas on the subject, these are my reckons.