Silicon Valley's Stinging—Why Banks' CTOs Should Take Notice

Famous for Google, Apple, numerous social media giants, and innumerable startups alike, the Bay Area has generally—and shrewdly—managed to avoid Wall Street's negative reputation. But this past week, two pillars of its spectacular rise—venture capital (VC), which has seeded many of its successes, and Bitcoin, which now has specialized server clusters as far afield as Iceland—found a pair of their leaders running afoul of political and legal correctness.

Tom Perkins, whose name adorns one of the more successful VC firms, Kleiner Perkins Caufield & Byers, penned a brief but incendiary letter to the Wall Street Journal that was immediately panned—including by his own firm—for predictions of impending class warfare, and its comparison to the violent Kristallnacht raid in the early days of the Holocaust.

Meanwhile, Charlie Shrem, founder of major Bitcoin operator BTCInstant, was arrested on charges that he knowingly enabled money launderers to hide criminal proceeds linked to an online drug-dealing venue, Silk Road, by accessing the currency. Investors, including ardent supporters of Bitcoin like the Winklevoss twins, have distanced themselves.

Augmented Reality
For an industry working on the next generation of "augmented reality" technologies (Google Glass, among others), actual reality has come dramatically crashing home of late—and some might say that was inevitable.

Perkins isn't the first of his stature to prove to be tone-deaf, and on the opposite side of things there is Bitcoin, which has always balanced on a double-edged sword between the anarcho-techno-revolutionary and a programmers' pipe dream. But, to take one example, Citrix wouldn't exist without Perkins' firm. And Bitcoin is perhaps the most novel application of financial technology creativity since the first trading algorithms were coded—recognizing, though, that in its setup and operation, it is also the most dispersed.

It's just possible that being 'boring' and institutional isn't always a bad thing. Indeed, many banks' IT chiefs will argue technology—more than ever—is about brand preservation, rather than being sexiest, or the loudest voice on the street.

Investment banks have seen their share of similar contradictions. Digesting each little news marker suggests a different lesson to capital markets technologists, with potentially lasting consequences. The first regards industry perception, and could be advantageous.

As we hear from CTOs at conferences frequently, financial IT has tried to borrow innovation strategies and culture from VC-backed start-ups for years in an attempt to stave off brain-drain heading the other direction, with only spotty success. If for no other reason than the 2,500 miles separating Manhattan and Menlo Park, finance has generally remained well-paid but “boring,” while the Bay Area tech sphere has spawned countless blogs, court battles, more than a few super-yacht-measuring contests, and has, at times, unfortunately conflated the possibilities of human-techno interaction with self-importance—thus, Perkins' letter.

It's possible, then, that being “boring” and institutional isn't always a bad thing. Indeed, many banks' IT chiefs will argue technology, more than ever, is about brand preservation, rather than being sexiest, or the loudest voice on the street.

This isn't to say that the public looks kindly on finance. But banks give everyone who qualifies and wants one a mortgage or credit card; venture capitalists don't. The increasing myopia that comes out of the Silicon Valley woodwork—and Perkins hasn't exhausted it—in combination with growing scrutiny of their monetization of users' private data, will only be beneficial for financial IT recruitment in coming years. After all, no one has ever used Wayne, Pa.—SunGard's home—as a synonym for aloofness.

BitRegulation
At first blush, the Shrem situation should seem similarly advantageous to traditional finance—in that it is a black eye for a cause that doesn't need one. To boot, Shrem was, before resigning, an influential member of Bitcoin Foundation, the currency's primary lobbying group.

In a classic case of an exception proving the rule, though, it's probably actually the reverse. Because sophisticated financial crime can, it seems, be perpetrated via Bitcoin, it can't any longer be denied that the currency is relevant—bizarrely legitimate, in fact. Yet it has no nationality, and perhaps more importantly, no semblance of coordinated regulation. If the currency survives a newly competitive push by both California and New York's Department of Financial Services (NYDFS) to regulate it—and that's a big if—BitCoin's transactability could become much more of a challenge to a historically strong source of sell-side revenue than it currently poses as just simply a high-value asset in a very esoteric and mysterious market.

Fittingly enough, NYDFS started that public discussion yesterday with hearings, after several months of internal investigation, with positive signals about the currency's chance to become 'mainstream'. One would imagine a few conversations at major sell-side firms' transaction services arm were had on the subject, too. And by the very nature of either discussion, technologists will need to be in the room, if not sitting at the head of the table.

New "Leverage"
In this sense, Bitcoin—like the Target data theft attack earlier this year—is emblematic of what Goldman Sachs CEO Lloyd Blankfein, speaking in Davos this week, pointedly described as the "leverage" that new and often murky tech-based threats can use to challenge the established order, for good or bad.

Perkins' rant should serve as a reminder that not all tech visionaries are empathetic—or appreciative of history. Perhaps a Wall Street CTO or two will ultimately benefit from that reminder. Sooner or later they may need to, if they're eventually chasing from behind a global currency that's just managed to further validate itself by, of all things, proving its worthiness for vice.