American Banker Conference: Lines Drawn in Blockchain Debate
American Banker's second annual digital currencies conference was also its first to put an equal emphasis on the emerging opportunities posed by bitcoin's distributed ledger, the blockchain.
The idea that conversation around the technology has altered drastically in the last year was first noted by American Banker editor in chief Marc Hochstein in the event's opening address. The talk proved forward-thinking in its praise for the promise of more expansive and experimental use cases for the blockchain while acknowledging that bitcoin, as its first application, had kickstarted a new wave of innovation.
"I'm not going to opine on the price, I'm going to talk about bitcoin, because the idea of it has made me a better editor at American Banker," Hochstein said. "Bitcoin has cast everything that came before it in a new light."
This tug-of-war between ideologies shaping the technology's development was on display most prominently in the event's early offerings, including a solo speaking slot by Eris Industries co-founder Preston Byrne and a panel featuring Symbiont's Adam Krellenstein, Digital Currency Group CEO Barry Silbert and author Tim Swanson.
The most interesting talks centered around the still evolving question of whether private blockchains pose a threat to public ledgers like bitcoin, or if they are simply another evolution of the technology specialized for more specific use cases. Still, most panels sought to showcase the technology's place in conversation surrounding larger concepts affecting the financial industry, such as digital identity, data security regulation and recordkeeping.
Representing incumbent banks in this conversation was BNY Mellon managing director Cheryl Gurz, who spoke on a panel meant to highlight future use cases for blockchains. Gurz shed light on the difficulty of mediating a conversation between enthusiastic technologists and sometimes critical economists while trying to uncover whether the technology can offer solutions.
"We shouldn't just be listening, we should be challenging. We should be in the conversations with the regulators. So much is being assumed that we're going to do, so much is driven by others."
Still prominent was conversation about bitcoin as a currency and its price against the dollar, though some panels and speakers touched on its potential use case in areas where financial services have yet to permeate.
Masters takes the stage
Perhaps the day's most anticipated session was the opening keynote by Digital Asset Holdings CEO Blythe Masters, the former JP Morgan executive.
Masters began her talk by addressing the opportunity she saw in distributed ledger technology as well as the personal journey that led her to get involved in its development.
While she said not every "cool technology" could be a catalyst for change and that real barriers toward wider adoption would prohibit short-term adoption, Masters was effusive in voicing her belief that the blockchain and distributed ledgers pose a significant opportunity.
"It should be fairly obvious that the addressable market for this technology is absolutely gigantic. We're talking markets that are measured in the trillions, not the billions. However, there are real frictions that exist, like the cash that we use is fiat cash and resides in bank accounts and not on digital ledgers.
Echoing comments raised in a recent article penned by executives at technology consulting firm Accenture, Masters also went on to note some of the more specific questions that she feels need to be addressed, such as how the industry should move toward standardization and deal with property titling issues.
Overall, Masters seemed keen to present a unifying message to the audience, suggesting that the best course of action for the industry is to work to understand the issues faced in the traditional financial industry.
"We need to be communicating with the existing legacy of financial infrastructure. It's important that we're respectful of that existing infrastructure, it works today and it has to work," she said.
Elsewhere, Masters addressed questions from the crowd, with one attendee posing a hypothetical situation designed to test the limits of permissioned or private ledgers. In this case, Masters was asked how a Venezuelan bank might interact with a permissioned ledger.
In response, she issued one of her first public comments on the bitcoin blockchain as a subset of the larger innovation, stating:
"I'm not making claims that the bitcoin blockchain has no useful purpose."
Separating bitcoin from blockchain
This friction surrounding the idea that certain parties in the industry are attempting to separate bitcoin's speculative currency from its digital ledger again created sparks in the panel including Krellenstein; Silbert; Swanson; and New York Law School's Houman Shadab.
It was perhaps Swanson and Silbert that served as the polar opposites around which the conversation pivoted, with Silbert emphasizing the expected high future price of bitcoin and Swanson revisiting his published work critiquing the cost efficiency of the bitcoin network when compared to tokenless blockchains.
"If you're doing a public network, maybe the only way to do that is a token. But if you're working with known entities on a private network, you can have contractual obligations to secure this network," Swanson explained.
He went on to relay an anecdote in which he suggested a bank had asked him whether it would be liable if it was involved in a transaction where the validating miner was perhaps operating in a country sanctioned under US law. Swanson suggested that, with the bitcoin network, answers to questions like this still remain too unclear.
Silbert took the opposite approach attempting to galvanize audience interest in bitcoin by appealing to the speculative value associated with its tokens. His remarks suggested he sees a potential outcome where bitcoin is propelled past alternative blockchains as the use of its network could create new wealth for users.
"You didn't buy bitcoin because you were trying solve issues with loans, you bought it out of greedy speculation," Silbert said. "You have a financial incentive to see bitcoin succeed."
In the midst of these disparate voices was Shadab, who successfully translated the debate into a moderate stance. Shadab argued that blockchains should be seen as transaction platforms that can be designed to offer certain advantages and disadvantages.
Shadab was also agnostic in his view on the bitcoin network, adding:
"These problems can be solved, but there are technological issues that you all will need to deal with it. Is it a token-based blockchain or a permissioned blockchain? As bitcoin grows in size and as transactions grow over time, some of the benefits of bitcoin, low-to-marginal transaction fees, may disappear over time. So there's trust tradeoffs."
Elsewhere, Swanson raised eyebrows with his typically confrontational approach to the panel session, suggesting that industry firm ShapeShift was perhaps providing a "money laundering service" due to its approach to regulation.
The blockchain as software
Perhaps best known for its colorful public messaging, distributed ledger startup Eris Industries made a splash with a confident presentation by co-founder Preston Byrne.
Byrne offered what may be some of the first public details on the project, revealing it intends to focus on smart contracts that use code to move and manage digital assets on a blockchain, thereby eliminating the need for a token.
Byrne claimed Eris is already working with "several tier-one banks", all of whom he says are interested in its centralized approach to the technology. "Decentralization doesn't work within existing legal paradigms. It causes more commercial problems than it solves," he argued.
Instead, Byrne sought to assert that the true innovation behind bitcoin was that it had created new database efficiencies, effectively merging a database with its log. "Bitcoin is a very successful piece of software, but it's just software," he said.
Byrne also gave insight into the trajectory of the company, which he said built a decentralized Reddit and YouTube in 2014 to prove the data processing capabilities of blockchains.
Still, he stressed that centralized alternatives to public blockchains like bitcoin could possibly be faster today while solving problems for enterprise clients.
"There are no network effects for a database, you're serving a market," he said. "Blockchain technology is better now than it was six years ago. You can get confirmations in a block in two seconds. They work in private segments, not necessarily decentralized ones."
The clearest insight into the evolving debate over the technology's development was perhaps provided by the day's final panel, which focused on its impact in financial markets.
Dominick Paniscotti, associate vice president of enterprise architecture at Nasdaq, provided the session's highlights, discussing how bitcoin only "scratched the surface" of the potential of bitcoin as a technology.
He told the crowd:
"You start off with this, 'Oh it's a digital currency, should we put up a bitcoin exchange? Could we trade spot bitcoin? We can set up an exchange any time we want to trade bitcoin, the power is to identify this person. I can identify that I sent something to someone and then everyone can look at it and say yeah that occurred."
Paniscotti went on to suggest he sees bitcoin as being one of a number of competing blockchains, ones that are better optimized for other needs.
Symbiont co-founder Mark Smith and Digital Asset Holdings CMO Dan O'Prey also provided insight in the difficulty of delivering technology to institutions such as Nasdaq, speaking about the "long sales cycle" and lack of education that is holding back efforts.
"When you're walking into the door and explaining what is bitcoin, you have maybe a year, a year and half sales cycle," moderator Brendan O'Connor, CEO of Genesis Global Trading, said. "When you walk in there and you're talking about utilizing bitcoin with this wallet provider, and you start having these kinds of questions, you know they're giving it more serious thought."
Smith went on to talk about how the emphasis on the blockchain as a technology had opened more doors to enterprise institutions, concluding:
"The naming of this conference tells you a lot."
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