CoinDesk spoke to IBM UK's executive architect for innovation in banking and financial markets, Richard Gendal Brown, to get his overview of what this disruptive new technology might hold in store for the future.
A far better-educated class of graduates is now emerging from universities thanks to bitcoin's existence, Brown said, adding:
"This is a field where you truly have to be interdisciplinary to make progress."
People with academic backgrounds like engineering and computer science, who previously would have had little exposure to finance or economics, are now endowed with much greater awareness of how financial systems work, and what the possibilities and problems are.
People looking at old problems in a new way, he said, "can't help but lead to exciting possibilities in the future".
There will be products and services that may not have been imagined yet, but which will come into existence thanks to these new perspectives.
Brown's position gives him the enviable opportunity to spend time examining blockchain technology and extrapolating on where it might lead, both for IBM's own clients and the rest of us.
Or as Brown himself puts it: "Where are things going, and what does that mean for what we should do together today?"
His blog has been cited as one of cryptocurrency philosophy's regular must-reads. More recently, he has been a leading voice in predicting that distributed ledger technology would extend far beyond bitcoin's payment mechanisms and into the wider fields of contract law, smart property, aspects of decentralized trust and solving the question of identity.
The importance of miners
One particular stand-out comment in late 2014 was Brown's regular assertion that currency was perhaps the "least interesting thing about bitcoin" and its underlying technology.
It would be wrong, however, to assume this implies bitcoin as a currency is not an interesting application. Rather, Brown's level of interest is such that the world-changing implications of distributed ledger and consensus technologies are simply more appealing to think about.
He also not intend to diminish the importance of the currency use-case, and bitcoin's value, in securing the network by providing miners with something to pay for expensive equipment and electricity bills.
"What I've come to stress more clearly over the last couple of months is: the security of the architecture underpinning decentralized systems like bitcoin does come from the incentivization of the miners."
Then there is the fact that other distributed applications often require some form of payment mechanism to function, so it's handy to have one already built in.
Bifurcation of focus
The placing of importance on either the currency/payments application or distributed ledger technology is creating the current bifurcation of development, which we now see in startups which focus on bringing bitcoin into the mainstream consumer space on one side, and more theoretical 'crypto 2.0' projects on the other.
Core currency use cases, to the extent they happen, will be driven by consumer applications, Brown said. "But I don't see the chain of logic that concludes with major banks doing something with the currency itself."
A limited factor in the payments field is that consumers in 'developed' economies aren't crying out for better solutions right now. Current systems available, despite their fees and security flaws, are still adequate for most people.
Major firms are more likely to find something compelling in distributed ledger technology, and would likely drive development in that space, he said.
Identity and reputation layer
Managing online identities and reputations is one important aspect of the technology in various crypto 2.0 applications – both in interfacing with existing know your customer/anti-money laundering systems and in developing new types of apps.
"I think certain use cases can't develop until there is some notion of identity," Brown said.
Using a colored coin-type platform as an example, he gives the example of a corporation that wishes to issue a blockchain-based bond. There are several identity issues that need to be resolved:
"Firstly, how does anybody else in the system know that that issuer is who they say they are? If I'm going to pay good money for a colored coin that represents $100m of a corporate bond issue, I'd better be completely sure that it really was issued by that company or someone acting on its behalf."
It needs to be more sophisticated than simply signing the issuing document with the company's SSL key, given that the person authorized to issue bonds is probably a different individual to the one who controls the key.
"You can also flip that, though – you've then got the obligation on the issuer to know who its lenders are. If I'm a US corporation and I have an obligation to pay a coupon once a quarter, or whatever, I will be in big trouble if I pay that coupon to a sanctioned entity."
It would be necessary to know who is holding the colored coins on the date of payment and, to avoid people gaming the system, the corporation would need to know who is holding the coin in the intervening periods as well, to make sure it hasn't just been moved to a sanctioned entity and then back again.
Opportunity for entrepreneurs
There is a real opportunity for entrepreneurs to innovate in this space, Brown continued. One point where crypto 2.0 projects could add some value is finding out how to encode and describe the rules that would govern something like the aforementioned bond issuance.
"There's a whole collection of law and thinking that needs to come together then to make this space work, and it's one of the reasons I find this space intellectually stimulating, because there are new problems to solve."
In considering crypto 2.0 applications, Brown also writes of concepts like the "continuum of decentralization" and the "unbundling of trust", where the choice between centralized and decentralized is not black and white, and various centralized or trusted entities (like banks' KYC requirements, or identities of bond issuers) can live at certain points on bitcoin's distributed backbone.
The sidechains concept, while only one potential solution of many, is one way that centralized entities could integrate with bitcoin technology, making it unnecessary to invent a new cryptocurrency with its own blockchain for every new application.
"It now gives us a way to bridge between the attempt at decentralization that bitcoin gives you, and the need sometimes to impose more controls because the business model demands it, or the law demands it. Previously it was one or the other."
All this brings us back to Brown's unifying message: that many of these problems might not even be considered were it not for the new merging of computer science disciplines with the needs of the financial and legal worlds.
"People tend of have a more open mind and are willing to think about things without the usual constraints of their day jobs."
Whether it's a better global payments system or something fundamentally changing organizational structures, the real 'killer app' for the burgeoning technological field may still be some way off.
It something not even considered yet, Brown said, or "an unexpected problem, to be solved with all manner of technologies ... It's an entry point for interesting conversation, if not necessarily the solution."
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