Dan DeFrancesco: Blockchain, Innovation Labs and Sorting Through the Madness

Technology tends to be overblown when first released. Smartphones and computers are always touted as being the smartest and fastest they’ve even been upon initial launch. This is true for financial technology products as well. If I believed every word of the press releases emailed to me, there would be a new best-in-class product for banks released every day of the week. When you factor in enhancements and new versions of solutions, it’s a wonder how firms can keep up with all the great products coming out every day. 

There are no greater culprits of this tactic than two industries that seem to be trending particularly strongly in financial services: blockchain and innovation labs. The two feed off each other, as the majority of distributed-ledger work being done by banks takes place in their innovation labs.

It’s almost as if both are intrinsically tied together and rely upon one another. Blockchain experiments can thrive in these looser environments where failure is not only accepted, but is expected and sometimes even welcomed. Meanwhile, innovation labs benefit from having the name recognition of being a place where one of the hottest technologies in the industry is being worked on.

For years, philosophers have asked: “If a tree falls in a forest and no one is around to hear it, does it make a sound?” When it comes to new technology, that question should be: “If an innovation lab is launched but doesn’t announce it’s looking at blockchain technologies, does it actually exist?”

Hype vs. Reality

More firms will jump on the bandwagon, afraid of missing out on the next big thing, while not putting too much skin in the game.

Whenever I chat with anyone involved in financial technology, the topic of blockchain always comes up. My two questions to everyone are always the same: How much of this is all hype? When are we going to see real results?

Almost everyone can agree that there is far too much hype around blockchain. Over the past six months, seemingly every firm in the industry has tried to squeeze the words “blockchain” or “distributed ledger” into announcements they’ve made.

What also seems certain is that industry-wide adoption is still several years away even if a single implementation of a blockchain solution could take place in the next 12 to 18 months.

So how does one sort through what’s real and what is hype? It comes down to results. Take, for example, the two news pieces I wrote this month on Axoni’s successful blockchain experiment (click here) and the launch of Deutsche Bank’s Silicon Valley innovation lab (click here).

Axoni’s Greg Schvey and Deutsche Bank’s Phil Gilligan gave stats on the success of their endeavors. Axoni passed 85 test-cases that touched on 50 to 60 different criteria. Gilligan’s labs have evaluated over 500 ideas and are on track to do deeper evaluation of 50 firms before the end of the year. He detailed the exact types of technology Deutsche Bank is interested in looking at in Silicon Valley.

Too often, folks in the industry talk in broad strokes without actually drilling down into the details. Blockchain is a perfect example of this. People know the topic draws a ton of eyeballs, and understand the general idea of what it does. Firms can then keep themselves in the conversation without actually having to do any real legwork.

“Interested in” or “looking into” is just a bank’s way of saying, “Sure, we think this might turn into something, but we’re not really willing to commit too much to it.”

As the hype train for blockchain technology rolls on, this problem will only get worse. More firms will jump on the bandwagon, afraid of missing out on the next big thing, while still not putting too much skin in the game.

There will, however, be a tipping point. Eventually, a bank will implement a blockchain solution, thus bursting this “blockchain bubble.” At that point, firms more interested in being a part of the conversation than listening to it will be forced to adopt the new technologies or scramble to catch up. But for now, sit back, sign up for a Google Alert on “blockchain,” and enjoy the show.