In this CoinDesk 2016 in Review special feature, CoinDesk's editorial team looks back on the stories and narratives that shaped the industry over the last 12 months and that cast a shadow on the year ahead.
2016 will go down as one of the most formative years for blockchain tech.
We saw tremendous hype as major enterprises invested big in distributed ledger and blockchain tech, and frustration as more established cryptocurrencies (most notably bitcoin) continued to struggle with mass adoption in the face of complex technical challenges.
But under the surface, it was perhaps a year that most often defied existing assumptions.
From governments worldwide embracing blockchain solutions to major hacks, thefts and blockchain schisms, this year saw old assumptions collapse and stronger foundations laid for the future.
These are the stories that changed the rules of the game most significantly, redefining the industry that is fast growing around the technology.
Overall, we looked for stories that had an impact across industry sectors, and that encouraged those in the industry to think deeply about our evolving technology and how it is likely to be deployed.
Bank of England Explores Distributed Ledger Tech for Settlements
Few knew then, but when the Bank of England revealed in January that it would consider the impact of using distributed ledgers as part of the UK's settlement system, it would prove the first in a series of announcements from central banks.
While central banks had before released papers on the technology, the Bank of England's statements were notable given they positioned central banks not as afraid of a disruptive technology, but as a group poised to capitalize on it.
Other central banks soon followed. Earlier this month, the European Central Bank (ECB) and the Bank of Japan announced a joint research effort into the potential use of blockchain tech, while the US Federal Reserve has released its findings into researching the risks and rewards of using distributed ledgers.
While no central bank has taken definitive action, the rhetoric continues to suggest experimentations at these organizations are ongoing – and that central bank blockchains could soon migrate out of the lab.
IBM Goes Big on Blockchain, Unveiling Services Suite and Strategy
The fourth-largest software producer in 2016 and the third-largest server manufacturer, IBM has distinguished itself as the fount for innovation, holding the record for most patents received for the year for the 23rd consecutive year.
So, it was shocking to many when IBM announced in February that the 105-year-old company had come up with a blockchain strategy for the delivery of its cloud-based business solutions (given that businesses seemed largely reluctant to aggressively back blockchain in years past).
Still, that didn't stop IBM from revealing an ambitious multi-year plan that incorporated existing assets such as IBM zSystems – the principal IT system for the world’s top banks, the Watson Internet of Things (IoT) platform and Bluemix Garage into a blockchain-as-a-service (BaaS) offering.
As the year went on, there would prove no shortage of announcements from IBM, both as a company, and as a leading member of the Hyperledger blockchain project, which swelled to 100 global members.
Ethereum Blockchain Project Launches First Production Release
Following its inaugural release – Frontier – in 2015, the blockchain platform ethereum released its first production version, dubbed Homestead, in March of this year.
Prior to the release, ethereum had largely gained notoriety and mainstream recognition due to the success of its crowdsale of ether tokens, but with Homestead, the platform emerged as a technology to watch.
Amid a surge in market cap and value growth, major companies began branding ethereum "bitcoin 2.0", embracing the technology with a rare enthusiasm.
Yet, the Homestead announcement was also notable for the outsized introductory statements by ethereum's enthusiasts.
"Homestead's arrival will begin to demonstrate the next generation of blockchain technology, whereby anything we can dream of, can be accomplished in a decentralized manner using ethereum," Andrew Keys, co-founder of ConsenSys Enterprises, told CoinDesk at the time.
Such statements would set the stage for difficulties in late 2016 as ethereum hit a series of public growing pains.
R3 Announces Corda, a New Distributed Ledger Technology
But even as open-source efforts progressed, businesses seemed more interested in alternative solutions.
Soon after ethereum's big debut, New York-based startup R3CEV announced in April that it was working on a decentralized platform specifically designed for financial institutions. But while Corda offered a more private version of blockchain technology, its aims were similarly ambitious.
"Our conclusion is that distributed ledger and blockchain technology represents a once-in-a-generation opportunity to transform the economics of data management across the financial industry," wrote Richard Gendal Brown, chief technology officer at R3, on his blog about this project.
Other differences between the platform and competing solutions were more notable.
Building a theoretical system that can respect and work around the reporting obligations and inter-organizational relationships that define modern finance, R3 revealed it was seeking to create a network that would provide both "supervisory observer nodes" (which could be used to oversee the system) and selectively include data (ensuring the confidentiality of sensitive data).
More could be in store for the tech in 2017, however.
Since the announcement, R3 has shared its open-sourced Corda code to the HyperLedger project and revealed a roadmap for its work in 2017.
Doubts Cast As Craig Wright Publishes Proof He Created Bitcoin
Since the creation of bitcoin, questions have persisted about the identity of the anonymous author of its white paper.
Yet, Satoshi Nakamoto did leave clues. In written posts, his (or her) grasp of English and use of British idioms and metaphors led many to believe that Nakamoto was not the Japanese man the name suggested.
In December 2015, this piece of the puzzle seemed to fall into place when Wired and Gizmodo published reports alleging that the creator of bitcoin may be Craig Steven Wright, an Australian entrepreneur and former academic who has worked with K-Mart and the Australian Security Exchange.
The reports also alleged that Dave Kleiman, a computer forensics expert, may have played a significant role, though the authors were not convinced at the time that they had the right men.
Then, on 2nd May, Wright publicly declared that he was, indeed, Nakamoto.
Making a claim that was validated by Bitcoin Foundation founding director Jon Matonis and Bitcoin Core developer Gavin Andresen, Wright sent a message – the validity of which was refuted by many in the community.
Though Wright would give up on defending his claim, the drama nonetheless served to stoke mainstream interest in bitcoin as a technology.
Apache Foundation Founder Named HyperLedger Executive Director
Faced with the possibility of having too many cooks in the kitchen, the Hyperledger project set the tone for its management in May by appointing Brian Behlendorf as its inaugural executive director.
The founder of the Apache Software Foundation, Behlendorf quickly interpreted his primary role as being to streamline the new members' onboarding process.
Stating at the time that, "It shouldn’t take three weeks to make your first pull request," Behlendorf sought to create a system so that new members could start contributing to the fabric immediately, and work soon began.
Over the course of 2016, the project would develop a thriving mailing list and hold a seemingly never-ending schedule of open hackathons.
But at the center of this effort was Behlendorf, who, while new to the industry, wasn't quiet about extending support to other open-source projects or his desire to solve big problems.
"I’ve been as frustrated as anybody in technology about how broken the world seems," Behlendorf said to the MIT Technology Review in November. "Corruption or bureaucracy or inefficiency are in some ways technology problems. Couldn’t this just be fixed?"
Bitcoin Halving 2016
For more than a year, the bitcoin community anticipated, fretted and speculated on what "the halving", or the scheduled reduction of the reward given to bitcoin miners, would mean for the health of the network.
Some speculated that the halving would lead to a decline in the price of bitcoin (as it would scare off speculative buyers), while others predicted a long-term hike in prices (based on the fact that new supply would shrink).
Despite all the theories, however, the halving ultimately had little effect on the market (other than to serve as a cause for celebration among bitcoiners).
Indeed, in an industry fraught with excessive drama, it was oddly unifying event.
Bitcoin prices may have dropped 10% immediately after the halving, but as the CoinDesk Bitcoin Price Index shows, this was a mere speed bump in a banner year for the digital currency.
The DAO Attacked: Code Issue Leads to $60 Million Ether Theft
If ethereum sparked initial interest, its first decentralized app (The DAO) would give the business world a glimpse of what a blockchain could do beyond cryptocurrency.
Core to its impact was the notion that smart contracts could become powerful business tools, potentially redefining how we understand data storage and data sharing. Suffice to say, when The DAO's developers admitted to being hacked, it set off warning bells.
The incident would lead to a massive sell-off on ether and the controversial forking of the ethereum blockchain to restore the lost ethers to the DAO.
All told, The DAO's hack set the stage for major controversy, leading to the original unforked ethereum blockchain to be preserved and maintained as ethereum classic – a wholly separate cryptocurrency network.
Months later, the event continues to provide fodder for analysis.
While some may see it as a cautionary tale, others believe The DAO provided just a preview of the disruptive power blockchain (and ethereum in particular) could have at scale.
Bitcoin Drops Nearly 20% Following Exchange Hack
Summer, it seemed, was the time for bad news.
Not long after The DAO's struggles, another cryptocurrency hack saw more than $60m in bitcoin stolen from Bitfinex, one of the world’s largest cryptocurrency exchanges. The incident represented the largest single loss of bitcoins since the 2014 collapse of Mt Gox, which saw 744,408 bitcoins disappear.
Flustering an already declining bitcoin market, bitcoin prices dropped from $560.16 to $480 in a single day, with Bitfinex’s decision to halt trading following the breach directly contributing to this drop.
Months later, the event would still have an impact on markets, with traders reporting the loss of liquidity in the ecosystem as a key contributor.
However, bitcoin prices would recover in light of growing international economic instability, with prices reaching a 34-month high as the year came to a close.
Investors Are Going Wild for a Digital Currency Called Zcash
Even as bitcoin and blockchain cultures clashed in 2016, common problems did emerge, and none may have been more prevalent than privacy.
The announcement of Zcash in October sought to change that.
Using a cryptographic tool that does not requires the exchanging of information between the parties engaged in a transaction, the Zcash blockchain promised a level of anonymity that had not been seen before with distributed ledgers.
To vet this claim, Zcash launched a beta in September to not only shake out any bugs that would impair its public launch, but also to test the anonymity of its system (the company spent $250,000 on an audit alone).
The possibility of a hack-resilient, anonymous blockchain stirred up investor enthusiasm, with Zcash futures contracts spiking from $18 in September to $261 ahead of the blockchain’s launch.
Months later, though, Zcash has largely failed to deliver on anything other than speculation.
Despite briefly reaching outlandish price highs of millions of dollars per coin at launch, the price has dropped dramatically to less than $50.
The IRS Seeks Data on Coinbase's Bitcoin Customers
In what seems to be a possible worse-case scenario for bitcoin privacy advocates, the IRS dropped a bombshell in November when it requested the records of bitcoin users held by Coinbase in November.
Referring to a group of "John Does", the government is now seeking information on a group of bitcoin users that allegedly avoided or failed to pay taxes on cryptocurrency transactions.
Said the US government: "The 'John Doe' summons relates to the investigation of an ascertainable group or class of persons, that is, United States taxpayers who, at any time during the years ended December 31, 2013, through December 31, 2015, conducted transactions in a convertible virtual currency as defined in IRS Notice 2014-21."
This investigation indicates a new interest from regulators in policing cryptocurrency use and comes two years after the IRS declared cryptocurrency to be a taxable tradable commodity and not a virtual currency.
Early signs are this won't be the last of the case, either.
Besides the “John Does,” the IRS is seeking information on two cases concerning "corporate entities with annual revenues of several million dollars.”
Goldman Sachs Leaves R3 Blockchain Consortium
Long the bulwark of blockchain projects, the first defection from banking consortium R3CEV sent shockwaves through the industry when Goldman Sachs opted not to renew its membership in November.
Adding to the perceived impact was the fact that Goldman was one of the nine original founding members of the consortium, and the company declared at the time that it would continue to develop blockchain projects on its own.
Revelations that Santander had also dropped out of the consortium and rumors of funding difficulties only added to the drama.
Still, the importance of the event might have been oversold. The majority of member banks have reportedly agreed to participate in R3's funding round, which could become the largest in industry history.
Further, in hindsight, difficulties among the more than 50 members was likely to be expected.
"Developing technology like this requires dedication and significant resources, and our diverse pool of members all have different capacities and capabilities which naturally change over time," said a R3CEV spokesperson to the Wall Street Journal in response to the departure.
Circle Ends Bitcoin Buying and Selling in Product Pivot
The event that perhaps best exemplifies bitcoin's struggles on the business side, Circle announced in December that it would no longer offer bitcoin exchange services.
Further, it revealed its newest product, Spark, would be a smart contracts platform allowing users to use networks other than bitcoin to settle bitcoin transactions (this could include other blockchain networks or a traditional payment settlement network like ACH).
Making the anouncement, Circle argued (and many agreed) that bitcoin technology was no longer central to its mission.
“We have never been focused on convincing consumers to replace their familiar native currencies with bitcoin, but instead wanted to bring the benefits of public blockchains and digital assets to consumers without requiring them to know the technical details,” read the Circle blog post.
Whether Circle's move comes in isolation or it's the harbinger of a trend for 2017, however, is still in question.
Notably, Circle's announcement came just weeks before a strong uptick in the price of bitcoin that still continues, an event that did much to suggest interest in the digital asset remains alive and well.
Have an opinion on blockchain in 2016? A prediction for 2017? Email firstname.lastname@example.org to learn how you can contribute to our series.
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