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Bullish on Blockchain: Why Corporates Should Forget Bitcoin

  • By Andrew Deichler
  • Published: 4/7/2016

COPENHAGEN, Denmark -- Blockchain continuedBlockchain Masters to dominate discussion on the third day of the Money20/20 Europe conference. As for bitcoin? Forget everything you’ve heard about it and other cryptocurrencies, said keynote speaker Blythe Masters, CEO of blockchain technology developer Digital Asset Holdings.

“When I first encountered [blockchain] it was in the context of the noise and the scandal surrounding the subject of bitcoin,” she said. “But when people were able to distinguish between those two topics and realize that many of the features of the public bitcoin blockchain are essentially technology specs that can be changed for use in different context, then this just becomes a discussion about enterprise technology.”

Masters explained that bitcoin developers designed the cryptocurrency to be exchanged without supervision from a central administrator. In order for that to work, they had to design a way to track the value that cannot be counterfeited; it had to be extremely secure.

“What was invented was a way where—for the first time—independent entities could safely and responsibly mutualize or share database infrastructure,” she said. “They can keep just one record of important transaction information, which they can collectively can refer back to with confidence, because it’s secure, in the context of a multiparty identity management and authentication framework.”

Masters added that this allows the financial services industry to go well beyond the narrow use case of cryptocurrencies. “It allows you to use that database infrastructure to track all sorts of other important financial information and activity,” she said.

(It’s worth nothing that Masters’ company is partnering with the Depository Trust & Clearing Corporation (DTCC) to develop and test a distributed ledger-based system to manage the clearing and settlement of United States Treasury, Agency and Agency Mortgage-Backed repurchase agreement [repo] transactions.)

As for how soon banks might be able to get blockchain technology off the ground to benefit their corporate clients, Masters noted three hurdles:

  • Uncertainty over potential regulation
  • The challenge of getting multiple parties to agree on sharing infrastructure
  • The creation of common standards around the technology.

However, she is optimistic that all of these impediments will soon be surmounted. The regulatory barrier in particular is already showing signs of dissipation. Initially, blockchain came under intense regulatory scrutiny due to bitcoin. Understandably, regulators recognized that a framework that facilitates anonymous parties to exchange value over the internet has the potential for consumer abuse. But again, blockchain has a broad range of use cases that go far beyond anonymous consumer payments. Regulators are beginning to see that.

“When you start talking about database infrastructure that allows parties to mutualize and share information in a more secure environment than the one in which we traditionally operate today, with the result that transaction processing can be sped up and error rates can be reduced—that leads to a reduction in risk,” she said.

Furthermore, regulators would have direct window into this shared infrastructure. Masters noted that awareness is already growing among regulators; many of them, including the Federal Reserve and the Australian Securities & Investments Commission (ASIC), have acknowledged the potential benefits in the technology.

“It is my view that we will see this technology, in various forms, being deployed in a commercial setting in less than a couple of years,” Masters said. However, she was quick to note that she doesn’t expect it to become mainstream for another five to 10 years, which would put her estimates in line with several experts who discussed the possibilities for blockchain at the Payments Innovation Alliance in February.

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