L
ast May, the blockchain fraternity met in New York City at a c on fer enc e c a l le d C on sen su s 2016: Making Blockchain Real. Representatives from up and down the technology food chain participated— from the tiniest start-ups to megabanks and other huge corporations. Every possible per mutation and combination involving blockchain technology filled the agenda—from finance to law enforcement to the theoretical “Fedcoin.” The infectious enthusiasm peculiar to leading-edge high technology filled the air. And then Gari Singh, an IBM distinguished engineer, speaking on a panel about blockchain and the internet of things, looked out on the audience and said: “People here have been saying all day that ‘the answer is the blockchain.’ But what’s the question?” The attendees didn’t pelt Singh with airborne mobile devices—he spoke rhetorically, of course, and he is a leader in his company’s extensive blockchain activities. But asking such a question now about this potentially highly disruptive, f ledgling technology is not only necessary, but healthy.
Shutterstock/Marynchenko Oleksandr
A very different tech Flashback to February of this year. Five very smart community bankers gather to speak about the future of their business. An interviewer asks them what impact blockchain technology will have on the industry. Four of them have never heard the word. The banker who has at least a working knowledge of the technology more or less shrugs—not going to affect his bank much, he says. Yet in his 2016 book The Business Blockchain: Promise, Practice, and Application of the Next Internet Technology, technologist William Mougayar w r ites, provocatively, “Understanding blockchains is tricky. You need to understand their message before you can appreciate their potential. In addition to their technological capabilities, blockchains carry with them philosophical, cultural, and ideological underpinnings that must also be understood.” That is a pretty heady brew of concepts to imbibe. It’s hard to see the introduction of the EMV card as being a matter for a philosophical discussion. Online banking and mobile banking certainly have had cultural impact, but another Mougayar comment puts blockchain
at another level: “If blockchains are a new way to implement trusted transactions without trusted intermediaries, soon we’ll end up with intermediaryless trust. Policy makers who regulated ‘trusted’ institutions like banks will face a dilemma. How can you regulate something that is evaporating?” W het her t hat is a n ex ag gerat ion remains to be seen. Many, many blockchain-oriented pilots, consortia, and other efforts are out there now. You can’t go to a fintech “demo day” without a good many of the speakers referring to the blockchain as part of their plans. Large banks and investment banks are part of the movement through cooperative efforts, such as R3 CEV, a consortium of over 50 large international players. Another is the Linux Hyperledger project. But for all the industry involvement, there are others, in addition to Mougayar, who say that blockchain technology will replace traditional intermediaries. “Can we build a better mousetrap with blockchain to solve problems of the financial services industry?” asks Ron Mazursky, director of the Strategic Initiatives Group at Jack Henry & Associates. “We think so—and there is a ton of money being thrown at it out there.” Yet Mazursky says that bankers need to understand—to their relief—that “it’s still very early in the process” for blockchain. He suggests that to a great degree, in spite of all the activity, blockchain is still in the “hype” stage of its cycle overall, though some services, such as Ripple’s cross-border payments service, are well established. He uses real-time payments to illustrate the point. While the Federal Reserve is attempting to administrate a shift to real-time payments, multiple competing systems are already out there. “If real time is the wild west,” explains Mazursky, “blockchain is still at creation. We have no rules. Frankly, you don’t want to be in the garden with just Adam and Eve.”
Fruit’s still on the tree
Don’t take Mazursk y a s a naysayer, rather, a realist. “There is a good tool here, but it will take time to ramp up,” he says. Those who may think that large banks are co-opting blockchain technology don’t “get” the blockchain, he says. Other than adaptations being tried for
August/September 2016
BANKING EXCHANGE
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