Recent months have seen blockchain innovation professionals departing legacy financial institutions for smaller startups, but the motivations driving this shift in the industry are less than clear.
To date, it's been one of the less-discussed trends of 2016, given the lack of public dialogue from the major firms affected and the relative quiet of the new startup founders, many of whom are seeking to do business with their former employers.
So far in 2016, BNP Paribas, Deloitte, JPMorgan and State Street have all seen members of their blockchain teams depart. This has given rise to a new wave of lesser-known startups including firms like DPactum, Kadena and Nuco. Still others, like the founder and head of Philips Blockchain Lab, have left without specifying why.
In interviews, representatives of these startups say the departures are more about bringing their enterprise blockchain insights to a wider group of industries. Rather than the result of any cutbacks in spending at major backs, this new generation of founders believes it will be easier to raise more capital, more quickly, outside the firm.
For Stuart Popejoy, who left JPMorgan's blockchain project in July to found financial services-focused private blockchain startup Kadena, it's about opportunity and demand.
Popejoy told CoinDesk:
"Our work at JPMorgan established that a scalable blockchain was possible, but somebody still had to push it out to the industry. After all, blockchains are inherently inter-organizational, whereas JPMorgan's priorities will be to solve problems in the bank."
But, Popejoy didn't go alone, as his fellow JPMorgan colleague, developer Will Martino, also made the move to Kadena. The two ex-bank execs want to bring the technology to the broader market, and in their eyes, it's still early enough to make headway.
Even the high-profile enterprise blockchain groups are having trouble answering basic technical questions – scalability, transaction privacy and the safety of smart contracts – about how blockchain can be implemented, he said.
"When we were at the bank, we simply couldn't find a vendor solution that could provide the necessary performance our use cases demanded without sacrificing the robustness and simplicity of a true blockchain, which is why we 'rolled our own'," Popejoy said.
Other former finance executives are departing for existing startups.
Jeremy Drane, for example, was previously head of blockchain at 'Big Four' accounting firm PwC before joining blockchain startup Libra as its CCO. Drane said he sees the recent run of departures as the natural progression of tech moving from experimentation to pilot phase.
"What you're seeing is the first round of projects moving ... off the innovation budgets into enterprise evaluation cycles where the processes are more rigid," Drane said. "There's a totally different set of rules around how those projects are managed and what flexibility you have."
This maturation is another possible reason that members of blockchain teams at legacy institutions are moving on, but industry analysts also spoke to its "sex appeal".
For professionals that are geared towards innovation, moving into production is less appealing. Instead, they'll take what they learned and build startups that bring the tech to more industries.
"There are probably push-and-pull factors for joining startups. The potential upside is larger in the entrepreneurial space than in managing a team in a large organization," said Antony Lewis, an independent blockchain consultant.
While there seems to be enough blockchain startups to go around, most of these companies operate in the financial services space. Legacy companies in other industries will need help adopting the technology for their business models. Consumer product companies, entertainment and media businesses, as well as humanitarian and international aid projects, are a few of the industries currently showing interest in blockchain.
Chris Larsen, founder and CEO of Ripple, said this movement signals that blockchain optimism is still on the rise for both banks and startups.
"If anything, I'd say it's an indication that thing are getting stronger and that [the professionals] see things booming and want to put themselves where the action is," Larsen said.
Others have demonstrated more skepticism.
Gideon Greenspan, founder and CEO of blockchain tech specialist Coin Sciences, sees the market for private blockchain solutions contracting. For example, he said that concerns about confidentiality have shaken the faith in use cases such as clearing and settlement that had previously been earmarked for R&D budgets.
"Much of banks' early investments in blockchains were based on this expected use case, rather than more general ideas of shared data storage (for which blockchains are well suited). In that case it would make sense for them cut back on spending in the area," he said.
However, Greenspan indicated that he hasn't seen a slowdown in the use of Coin Science's Multichain platform for big bank pilot programs. So far, he said, Multichain has been used to create a crowdfunding platform, a regulator overview and a shared documentation notarization service.
One reason banks may be pulling back on external equity investment and partnerships with startups could be the overabundance of blockchain startups in the market.
"Banks could be waiting to see which platforms become dominant before developing a project on any particular platform," Greenspan said.
Many banks, analysts said, simply don't have the manpower to filter through and vet all these various startups.
For now, it seems the industry will remain stuck in the awkward positioning of its hype cycle. While many are heralding 2017 as the "Year of the Blockchain", it's likely that this claim will be valid for years to come.
Libra's Drane concluded:
"I can understand the skepticism, but these systems take a long time to build."
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