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Summary

The growing number of major financial institutions willing to admit that they are investigating blockchain technology and the growing ambition and complexity of blockchain-driven platforms suggest we are entering the blockchain 2.0 phase of development. Attitudes to the blockchain are shifting more rapidly than would have seemed possible 12 months ago and it is imperative that enterprises and vendors alike understand the implications.

The growing complexity of blockchain is revolutionary

The recent launches of blockchain-driven platforms such as Ethereum, T0.com, and Counterparty alongside the continued development of protocols such as Ripple and Colony have the potential to upend existing business models and technology frameworks well beyond the payments space. In addition, the growing number of widely respected institutions publicly experimenting with and developing blockchain technologies, including IBM, Samsung, the NASDAQ, and banks such as Citigroup, highlights the changing attitudes at an organizational level to the blockchain. This is a leap away from the initial rush of online players that began accepting bitcoins largely as an attempt to garner free publicity.

Unsurprisingly, given the currency roots of the blockchain, the financial services sector will be the first sector to see the impact of this interest because it presents the most obvious use case. Already today the Ripple protocol is being used to power distributed automated FX and underlying bank payment infrastructure and platforms such as Counterparty can be used for escrow and clearing house services. T0.com is being used to issue the world’s first crypto-security on Wall Street for major online retailer Overstock.com, while also enabling fully distributed secure trading of public and private equities. Alongside powering these transaction types, distributed blockchain technology brings major levels of transparency and cost reduction to complex financial transactions.

The newest generation of platforms, including Ripple, Ethereum, and Colony, take this a step further. By operating off their own bespoke blockchain rather than riding the rails of bitcoin these platforms allow for high degrees of programmability. Most notably Ethereum acts as a platform for distributed apps and smart contracts that can be programmed and used for any variety of purposes. For instance, IBM recently undertook a proof-of-concept project with Samsung using Ethereum to create a decentralized network of connected white goods such as washing machines.

The critical component of all of these platforms that makes them so revolutionary is the fact they are all open-source developments enabling anyone to fork or advance the technology further. With no central developer or key industry players dominating the market the scale of innovation is only increasing, while making forecasts of the space near impossible. This very wildness of blockchain development means that no enterprise or organization can ignore this technology. Even newer disruptors are at risk of being themselves disrupted – one could, in theory, create a distributed app on Ethereum to connect taxi drivers with consumers, without the need of a middle man such as Uber. There remain substantial opportunities with the blockchain, and the key is understanding its implications.

Appendix

Further reading

Framework: Bitcoin and the Blockchain Basics, IT0059000003 (February 2015)

“The Blockchain is far more important than Bitcoin,” IT0003-000641 (January 2015)

Security Implications of the Internet of Things, IT0022-000277 (December 2014)

On the Radar: BitPay, IT0003-000608 (May 2014)

“Bitcoin hype ignores the challenges of gaining financial legitimacy,” EI002-000002 (June 2013)

Author

Gilles Ubaghs, Senior Analyst, Financial Services Technology

gilles.ubaghs@ovum.com

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