Bitcoin evangelist, public speaker and community director of the Counterparty Foundation, Chris DeRose is also a journalist and software developer. In this special feature, he looks into the state of blockchain businesses during 2015 and looks forward to what the future holds.
If one wanted to survey the state of private blockchains in 2015, it would be hard to find a better example than by simply watching the blockchain panel at this year's Innotribe conference.
In front of a large group of finance professionals, "blockchain experts" and audience alike agreed that blockchains were the wave of the future – despite a complete lack of consensus on what a blockchain is. Or even why one is needed.
With every year comes a new audience fresh to the field with ambitions to solve all the problems of our day with lockchain. Common to nearly all of this year's blockchain pitches is the odd and previously unsexy efficiency of "notarization".
If one reads through the marketing brochures for the private ledger companies, the takeaway would appear to be hinged on the discovery of a great new technology that performs data-checksumming at blistering speeds and in ways that were previously encumbering the entirety of our modern finance industry.
Consider me skeptical.
Notarization was never a feature of blockchains, and had previously been considered one of their greatest 'bugs'. If you ask most bitcoin developers what the most pressing problem is with their blockchain, you're likely to hear that 'fungibility' is its biggest weakness. Fungibility in this case being simply the opposite of regulatory oversight and reporting.
While the headlines are quick to name the support of "big banks" in this new application of blockchain technology, it would seem that many of the newcomers are doing what newcomers often do: start their own blockchain and sell tokens.
Unique to this year's entrants is the notion that tokens are bad, but that 'shares' in those peddling blockchains are good. What the difference is between shares and tokens remains murky, but this nuance aside, everyone wants to receive consulting as part of their investment.
If nothing else, the big winners in 2015 may remain those efforts which secured the most funding.
Computerized settlement, notarization and checksumming is a mature industry that has never before been hampered in its efficiency by anything other than regulation. These regulations are generally very efficient in normalizing risks in the finance sector, and software in the field has performed precisely as well as the regulatory framework allows.
Efforts to enable a regulator's ability to inhibit company operations were previously kept to a minimum, though many in the field would now appear to want to turn this arrangement on its head.
In the hype period leading up to the current state of private blockchains, it was a common refrain that 'selling' the world on the notion of 'the technology behind bitcoin' would be the best way to demonstrate its utility.
Many of the newcomers in 2015 have taken this propaganda to heart, and, in doing so, left out the most important part: risk reduction in settlement amongst untrusted parties.
One would hope that those 'thought leaders' omitting this virtue may end up bearing a lot of the blame when notarization efforts fall short. Whether or not you believe bitcoin is a fad, it would appear that this segment of the market isn't being challenged by any of the newcomers.
Part of the pitch among those in the distributed ledger space would lead us believe that computer databases were the reason why our transactions take so long to process. This extraordinary claim has been met with little resistance by many in the finance world, as the notion that "blockchains have won" has seemingly preceded all understandings of what else they're needed for.
But, at the tail end of 2015, such reasoning is just beginning to unravel.
Oddly, the incumbent consumer payment networks appear to be the first to understand the true purpose of blockchains.
And just recently, skepticism of the distributed ledger space was put forth by none other than Izabella Kaminska of the Financial Times, who wrote a short and impressive dismissal of this new industry in which the headline alone summarizes it best: "Psuedo profound buzzword banking revolutions involving coins".
What does the future hold?
So what can we expect for blockchains in 2016?
Few spaces are as active as this one, and the successes will become obvious. These successes are already found in comparatively older companies such as BitPagos, and Backpage.
Apps which will successfully utilise a blockchain will be successful, not because people want to use blockchains, but because they have to. Even more disruptive apps are on the horizon, and while these apps are certainly ambitious by today's standards, 'disruption' is purportedly what FinTech is all about.
Private blockchains certainly have a future in 2016. However, it's hard to find an industry whose notarisations aren't already well served by humble staples like Archive.org or even Google Docs.
In the world of lockchains, there is no idea quite so unprofitable as an idea whose time has come, and it remains to be seen who, if anyone, will actually be making a profit in the consulting or distribution of this private blockchain software. Furthermore, as this industry matures, incumbent industry players such as Oracle and IBM will likely 'flip the switch' and offer drop-in turn-key solutions of their own.
Private blockchains will be important – but not in the ways this year's adherents have promised. Blockchains will likely increase pressure on regulators to reduce their overhead as regulatory burdens in the settlement industry are rendered redundant.
Similarly, it may simply be the legacy of private blockchains to "sell regulators on the idea of blockchains", as banks and payment processors embark upon a more sustainable path towards profitability in the form of regulatory arbitrage.
Want to share your opinion on bitcoin or blockchain in 2015, or a prediction for the year ahead? Send ideas to email@example.com to learn how you can join the conversation.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.