Tim Bourgaize Murray: A Heady Debate at the Intersection of Bitcoin and Blockchain

I’ll admit it. Earlier this year, I wrote a feature looking at bitcoin (BTC) derivatives venues, but an underlying ledger technology, blockchain, kept popping up and up. So I couldn’t help but toss it in as a parting thought. A colleague at Risk was curious about blockchain too. One evening he asked me to describe it. I managed about two sentences, stopped, and took a long sip of beer. It was clear there was much more to learn.

We’ve come a long way in the nine months since then with blockchain, even giving it its due in a feature. But in an odd way we’ve managed to return to a place and know it for the first time, as T. S. Eliot would put it. 

Let me explain. It’s taken a long time to convince people at conferences, our sources, and even investors in blockchain startups to draw a clear distinction between the ledger and the more famous cryptocurrency it underlies. Even experts in the space still slip and confuse them once in a while when explaining the difference. It doesn’t help that despite the very contrasting issues to deal with for BTC and blockchain, respectively, the two are often still lopped into the same discussion: a couple of bitcoin backers here, a few ledger shops there, some straddling the fence.

’Coin versus ’Chain
But this cozy proximity has served to have a very constructive effect on the blockchain narrative. Indeed, it has created a lively debate, and has slowed the blockchain momentum, if only a little, by asking quite reasonably and simply: Do we really need this, and why? 

People in the BTC world have an almost-paternal affinity for BTC and the multiple technologies it successfully combined. They don’t believe the currency has lost its usefulness at all, despite its value tanking, and can point to more and more mainstream applications for it as evidence.

Blockchain could falter under the weight of expectations; therefore holding up current lines of tech work would be folly.

Meanwhile, these same folks know the ledger’s ins and outs—and its limits—better than anyone else. And so, when they see insurgent venture capital ramping up the hype and establishment banks beginning to do research (without much public disclosure) around the technology’s potential uses, they react instinctively, and usually with frustration. Thus, we return to bitcoin and blockchain, side-by-side again—no longer to distinguish them so much as to see their proponents grapple over their applications and potential.

Early Returns
Who wins all this is far from clear. Early returns are coming in as real implementations are publicized, and the results are mixed depending on your perspective.

Take the case of bank loans, a key target market for blockchain startups because of its slow settlement times. I’ve heard of several interesting projects underway among bank syndicates using the ledger. Considering the relatively young life of blockchain’s usage in capital markets, that’s a nice start. Spot implementations are nothing to be ashamed of at this stage; in fact they’re necessary.

But middleware providers seem to need convincing. As John Olesky, product manager for loan trade settlement services at Markit, recently wrote: “It takes time to fully harness any technology and that often means years. So, are you willing to maintain your status quo for years on the bet that a new technology delivers on the promise of straight-through processing (STP), which it may or may not do?”

The implicit prediction—and Olesky is far from the only one to make it—is that blockchain, while interesting, could falter under the weight of expectations; therefore holding up current lines of tech work for it would be folly.

As he put it, “a solid breadth of technology” for loans is already available, and those pieces just need greater adoption. “What the loan market needs to do is acknowledge that better is better.” 

So a blockchain killer could be misplaced ambition, or predilection from certain markets to shrug off any attempt at automation—traditional, newfangled or otherwise. Blockchain might work best as one functional piece—a means to an end—in achieving a revolution, rather than as a revolution, as the bitcoin camp argue. Maybe it sees limited internal usage among small permissioned groups, and that’s the extent of it. Or perhaps all the naysayers will be proven wrong and this thing really is Messianic?

This much is certain, though: the argument is maturing, thankfully, and its din grows only louder.