Why Banks Misunderstood Blockchain in 2015

     Bitcoin evangelist, speaker and community director at the Counterparty Foundation – Chris DeRose, a journalist and software developer, takes a look at the state of blockchain business in 2015 and what the future holds.

     If one wanted to survey the state of private blockchains in 2015, there is no better example than observing the actions of the blockchain panel at this year’s Innotribe conference.

     Speaking in front of a large crowd of financial professionals, the “blockchain experts” and the audience agreed that blockchain is the wave of the future — despite a lack of consensus on what blockchain is.

     Every year, there is an ambitious new audience member who proposes that blockchain technology can solve all the problems we face today. This year, almost all of the audience felt that blockchain is strange and that the previous "notarization" has no substantive effect.

     I doubt it.

     Notarization has never been a feature of blockchain, and it was previously considered one of its biggest “bugs.” If you ask most Bitcoin developers what the most pressing problem with blockchain is, you’ll probably hear “fungibility” as its biggest weakness. In this case, fungibility is the opposite of regulation, oversight, and reporting.

     While the headline directly states that “big banks” are backing this new blockchain technology application, there seem to be a lot of newcomers starting their own blockchains and selling tokens.

     The most unique thing about this year’s new members is that they think tokens are bad, but shares of blockchains being sold are good. While the difference between stocks and tokens is not clear at this point, nuances aside, everyone wants to consult about it as part of an investment.

     If nothing unexpected happens, 2015's big winners are likely to continue to scoop up the most money.

Blockchain Promotion

     Computerized clearing, notarization, and checksums are mature industries whose effectiveness has never been affected in the past, except by regulation. These regulations have generally been very effective in standardizing risk in the financial industry, and the software in this area has been operating as the regulations allow.

     Previously, work was kept to a minimum to enable regulators to curb company operations, although many regulators in the field now want to change this arrangement entirely.

     During the hype period before the private blockchain era, it was common to say that “selling” on the idea of ​​the technology behind Bitcoin was the best way to demonstrate its utility.

     Many of the newcomers who joined in 2015 took this approach, but in doing so they overlooked the most important part: reducing settlement risk from untrusted parties.

     One hopes that when notarization fails, the “thought leaders” who omitted this efficacy will eventually be blamed.Whether you believe Bitcoin is a fad or something else, it emerged in a market that has not been challenged by any newcomers.

     There may be some in the world of decentralized ledgers that would lead us to believe that computer databases are the reason why it takes so long for us to process transactions. This extraordinary claim has been met with resistance from many in the financial world, as the notion of “blockchain wins” has become ingrained in their minds.

     However, at the end of 2015, such an argument is only beginning to be made.

     Oddly, it seems that consumer payment networks are now waiting to understand the true purpose of blockchain.

     Hot on the heels of American Express participating in a sizeable funding round for innovative regulatory arbitrage firm Abra , Visa came up with a very interesting (and seemingly well-thought-out) proof-of-concept for remittances.

Where does the future lie?

     So, what should we expect from blockchain in 2016?

     Few areas are as active as blockchain, and its success is evident in relatively old companies like BitPagos and Backpage.

     Newer entrants into the space that seem to be more embracing the capabilities of blockchain include bitcoin sportsbook Nitrogen Sports and quirky (and addictive) gaming startup BitKong.

     Applications that successfully leverage blockchains will succeed not only because people want to use them, but because they have to. Even more disruptive applications are on the horizon, and while they are certainly ambitious by today’s standards, ‘disruption’ is the real meaning of FinTech.

     Private blockchains will certainly have more promise in 2016, but it’s hard to find a business like Archive.org or even Google Docs that doesn’t have a notary service.

     In the blockchain world, as the industry continues to mature, current industry players such as Oracle and IBM may "flip the switch" and provide their own embedded turnkey solutions.

     Private blockchains will become more important — but not in the way that this year’s followers promised. Blockchains may put pressure on regulators to reduce their overhead, as the regulatory burden on the solutions industry has been shown to be redundant.

     Equally, it could also be that the private blockchain problem is left behind simply for the sake of “selling the idea of ​​blockchain to regulators” because banks and payment processors have already moved on to a sustainable path to profitability in the form of regulatory arbitrage.