If 2013 and 2014 was a period of soaring interest and investment in the digital currency of bitcoin, then 2015 will go down as the year of sharply reduced expectations. But a number of technology experts, investment firms, and even the world’s largest banks are beginning to send signals that the blockchain – the public online ledger that drives bitcoin – is about to move into mainstream commerce in a big way.
“There’s a lot of smart people putting a lot of money into this right now,” said Nathaniel Popper, a journalist with the New York Times, who spoke this past Monday at TechCrunch Disrupt in San Francisco. Popper, the author of a book on bitcoin titled Digital Gold, said that he believes the underlying code behind bitcoin is still very strong, but there are still questions about its future role in global finance.
“The big question right now is whether it is the predecessor to the thing that matters or is it the thing that matters,” said Popper.
A number of people are starting to believe that the thing that matters may in fact be the blockchain. In a separate interview for this column with Jason Oxman, CEO of the Electronic Transactions Association (ETA), the trade group’s leader said that there is currently a lot of discussion among key members in his industry about the blockchain and that big financial institutions are taking a closer look at its potential uses.
“The fact that they are looking at it very seriously suggests that this is worthy of investigation,” said Oxman.
Oxman’s point seemed to be validated this week by two recent events which were quietly reported in the trade press. Earlier this week, the Bank of America filed a patent for a system based on memory and a processor to initiate wire transfers using cryptocurrency. And just a few days ago, New York State’s financial regulator issued the first bitcoin license to Circle Internet Financial, a startup that has received millions in venture funding from big-name firms such as Goldman Sachs and IDG Capital Partners.
While the value of a bitcoin itself has fluctuated wildly since reaching a high of over $1,200 in 2013 (it is currently around $235), there are a growing number of startup companies who are building businesses around the use of the blockchain to facilitate transactions of everything from notarizing documents (Stampery) to closing real estate deals (Ubitquity). And they are having no problem getting funding either.
In an appearance yesterday at FinTech, a financial technology conference organized by the SVForum in Redwood City, California, Brock Pierce of Blockchain Capital revealed that “blockchain deals are being financed fairly easily right now at extraordinarily high valuations.”
Appearing with Pierce at FinTech yesterday was Adam Draper (son of the pioneering venture capitalist Tim Draper) whose startup accelerator called Boost VC has already funded 53 blockchain companies. He told conference attendees that opportunities for the blockchain technology range from seamless cross-border exchange and stored value of foreign currencies to microtransactions over the Internet.
Other companies are building their businesses by servicing this growing community of blockchain startups. BlockCypher builds blockchain applications on a cloud optimized platform. “We’re the Amazon Web Services for the blockchain,” explained Catheryne Nicholson, Blockcypher’s co-founder and CEO, during her FinTech appearance yesterday.
Like any disruptive industry, the bitcoin/blockchain universe has been experiencing its own growing pains. The attractiveness of anonymously traded cryptocurrency has lured online pirates whose ransomware schemes are frequently paid out in bitcoin and criminal websites, the most notorious of which – Silk Road – facilitated illegal drug sales using cryptocurrency for payment and was ultimately shut down by law enforcement.
Draper admitted that a number of his startup companies had to open multiple bank accounts to operate “because a number of them would get shut down.” Just this month, 13 bitcoin companies in Australia had their accounts closed by the country’s banks, which has triggered an investigation by regulators for blacklisting.
“With bitcoin, there are a lot of things which made people not trust it,” said the New York Times’ Popper.
Despite the occasional bad press and struggle for mass adoption, the notion that bitcoin has been a failure seems to be diminishing rapidly. At TechCrunch Disrupt this week, the session on cryptocurrency was titled, “”Is It Time To Stick A Fork In Bitcoin?” and for all of the panelists discussing the topic, the resounding answer was “no.” Based on the recent actions of large financial institutions and a growing number of new companies in this space, the coming year may well be a watershed moment for digital currency.