Blockchain: Shall We Talk About Something Else?

Here’s how
my meeting with the CEO of one company providing blockchain technology started
last month.

CEO: It’s good to see you again, how are you?

Me: I’m good, thanks. But honestly, I’m a pretty
blockchained out right now…

CEO: Me too, shall we talk about something else?

Obviously
he was (mostly) joking but I have been suffering from a real blockchain fatigue
lately and, judging by some of the informal conversations that I’ve had with
other market participants, I’m not the only one.

Part of the
reason for this is just the relentless barrage of emails, press releases,
launches, news articles, etc about distributed ledger, or blockchain, technology.

For
example, R3 issued a release last week announcing that yet another firm has
joined its consortium. The rumour in the office is that Profit & Loss might end up joining the group just so that we
don’t feel left out (
although no doubt bitcoin creator,
Colin Lambert, would have plenty to add to the group
).

All joking
aside, we did not report on the announcement because, frankly, it isn’t that
relevant to our readers at this point that one startup has joined the
consortium created by another startup to “explore use cases” for blockchain
technology.

Just so it
doesn’t seem like I’m picking on R3, I’ll highlight another recent blockchain press
release that we didn’t report on, this time from Digital Asset.

At the end
of September Digital Asset announced that it had partnered with Six Securities,
a post-trade infrastructure provider in Swizterland, and now “plans to develop
a proof of concept that will demonstrate the commercial viability of
distributed ledger technology across the Swiss financial market”.

Oh good,
another proof of concept involving blockchain. Let’s be honest, if this release
did not contain the “B” word there’s no way that it would have got a press
release or been considered newsworthy.

Yet the
release continues: “The two firms will also develop a roadmap for future
opportunities spanning the whole market infrastructure value chain.”

Just to be
clear: they’re announcing that they’re planning to come up with a plan for how
to use blockchain in financial services.

It’s no
wonder that the accusation that blockchain is a solution looking for a problem
gets thrown around so often, when there are so many releases like this being
thrown around and reported on.

But it’s
not just the vendors, who have an obvious agenda for pushing the hype, that
have been doing so.

Infrastructure
providers such as Markit, DTCC and Swift have all been either putting out
reports, speaking at public events or just getting in front of the press to
explain why they’re excited about blockchain technology (
See Blockchain: Weathering the Hype
Storm, written after the DTCC conference
).

Then again,
this could be partly an effort to head of some of the questions regarding
whether blockchain technology could disintermediate some of the incumbent
financial services infrastructure providers.

Meanwhile,
many of the banks have responded by creating blockchain teams and/or creating
innovation labs.

“When banks
don’t know what to do, the first thing that they do is set up some sort of
laboratory. We’ve seen plenty of banks announce these labs and then usually
after about two years these labs run out of political support amongst the board
or the senior executives who start questioning how the lab is helping the
bank’s bottom line. Then they start scaling back the lab,” was the assessment
of the CEO of one FinTech company that I spoke to recently.

This is why
the R3 consortium is a convenient solution for many of the banks, they simply
cut a cheque to be kept in the loop as the technology develops. And there’s
nothing inherently wrong with this, as Charley Cooper, managing director of R3,
made clear in an
article we published this summer.

But until
there’s actually something tangible or worthwhile to be reported on, I feel
that the noise around blockchain might end up actually hampering its
development by drowning out the real developments.

That’s why
I wanted to highlight two stories Profit
& Loss
published last week that I think should be of interest to our
readers.

The first is the deal between Visa
and Chain to create a new business-to-business (B2B) payments platform using
blockchain technology
.

Despite
being a huge company Visa has not traditionally been a big player in either
micro payments or very large transactions, with public filings show that
commercial payments only account for in the region of 10% of its business.

So it’s not
trying to replace or update its core business but rather is looking to use the
technology to augment a large business segment where it only accounts for a
fraction of the market.

Unlike the
proof of concepts being touted, this is the announcement of something that the
firms have committed to launching and there is a minimum viable ecosystem of
banks, visa clients and currencies that will be involved in the initial
rollout.

The other interesting announcement
was from Cobalt DL, headed by FX industry veteran Andy Coyne, which announced a
partnership with SETL to deploy its Open CSD distributed ledger within its FX
post-trade platform that it scheduled for launch next year.

This deal
was the next step towards the launch of this platform, with Cobalt DL claiming
to have 15 institutional FX participants already committed to the service.

As SETL
CEO, Peter Randall, noted at the time of the announcement: “This is not a
proof-of-concept or a prototype; it will be a revenue generating implementation
of distributed ledger technology.”

I think
that blockchain technology is a fascinating development and could have a long
and lasting impact on the financial services industry. And as such, it does
need to be talked about. But at this point, unless someone is producing
something tangible or providing some clear and unique insight on the subject
I’m happy to talk about something else.

galen@profit-loss.com

Twitter @Galen_Stops

Twitter @Profit_and_Loss

Colin Lambert

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