Blockchain, Meet MI5?
Could government oversight put the kibosh on blockchain's advance?
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Earlier this year, I interviwed the Group CIO at UBS, Oliver Bussmann, who is a bit of tech evangelist — well, rather more than a bit, actually.
At the end of our chat, he mentioned that this year would witness the genuine entrance of blockchain — the distributed ledger technology most famous for undergirding Bitcoin — into wholesale banking and institutional finance.
Fair enough, he did hedge a little by saying it would be several years before blockchain would be widely implemented. And that made sense at the time: I'd only heard of the blockchain once, during last year's Innotribe sessions at SIBOS, and was still catching up to how it works, myself.
In retrospect, this reminds me a little of a Sports Illustrated cover from last year. The magazine was lambasted for predicting that the Houston Astros — notoriously, our Sell-Side editor's favorite baseball team — would be World Series winners in 2017. Given their young talent, the logic was always easy enough to understand — and after having a horrible team for years, the Astros now have one of the best records in baseball — but maybe SI actually had the date for a championship a year (perhaps even two years?) too late. We'll have to see.
Like the Astros, blockchain has been coming on very strong and sooner than many have hoped. This week, another financial services startup with blockchain focus, Symbiont, reported a new stable of sterling backers from across the Street.
We've seen so much of that kind of news in the last six months that it's almost become expected, with much of the outside seeding money coming from buy-side veterans looking to jump on the bandwagon.
Not So Fast?
So it's fair to say blockchain is at the very center of the renaissance in fintech investment. But for the skeptics out there who doubt its staying power, there is already one reason why we should all calm down and say, "not so fast". And, unsurprisingly, it's every libertarian's nightmare: government oversight.
Earlier this month one London-based blockchain outfit called Eris Industries — not to be confused with the swap futures venue in Chicago — put down a marker saying it would leave the UK if a new extention of communications monitoring legislation, known to its detractors as the "Snooper's Charter", were to pass in parliament.
The Communications Data Bill, as it is properly known, would require secure messaging applications, including those that use open-source cryptography tools like blockchain, to report information to the British security services. And many say it would have a serious ripple effect upon many of the startups working in the space, at least among those based in the United Kingdom.
One problem with this is that London has proven a terrific magnet for cryptography talent, with banks including Bussmann's UBS and Deutsche Bank setting up innovation labs to look at potential capital markets applications.
Could they simply relocate? Of course. I'm sure New York or San Jose would love to have them.
But that's not really a solution: the US is probably already looking into hacking blockchain for monitoring purposes just the same, even if it has been less up front about admitting it or legislating that specific power. And assuming the bill passes in the UK, one would expect other countries will codify something similar, if not right away then soon.
Staying Power
Now, as Mark Smith at Symbiont pointed out to me, not every blockchain application has to be an open communications network exposed to monitoring; in fact smaller 'known networks' might prove to be more useful to financial services in the long run, and those would obviously seem less relevant to state security services than Whatsapp or Snapchat. Assuming the industry musters the enthusiasm to overhaul systems and dump established protocols, blockchain could certainly maintain its usefulness that way.
The question is whether the coding expertise on the other side of this — which is already in fairly short supply — will stick around a technology that developers might come to feel is practically (or at least philosophically) compromised.
After all, immutability and security are two of the top-line attractions for blockchain and any potential 'bitcoin 2.0' app or smart contract coded around it.
Even if the impetus remains, once one or both of those is gone, demand could flee to the next great thing, and with it the talent and ultimately, capital.
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