The price of the digital currency bitcoin rose more than 100% this year.
At the outset of 2016, the controversial coin was trading around $430. This week, it cleared $900, its best level since 2013. As Bloomberg points out, it “crushed every other currency.”
But the talk this year was all about blockchain.
Banks and blockchain
Blockchain, the open, tamper-proof, peer-to-peer ledger technology that underlies bitcoin, has captured the excitement of banks and financial institutions who want to apply the technology to a wide range of processes—without bitcoin. (What exactly is blockchain? Watch this video.)
This year, IBM announced the creation of a new unit called Watson Financial Services to encompass Watson, cloud, and all blockchain-related offerings and strategy. The computing giant created new jobs specifically devoted to blockchain, with the aim of harnessing blockchain technology for client services.
Big banks and payment processors, too, staffed up for blockchain. On job networks like Monster.com, Yahoo Finance found more than 100 posts at companies like American Express, Bank of America, BNY Mellon, Capital One, Citigroup, Fidelity, and JPMorgan.
Walmart partnered with IBM on a pilot program to track the pork supply chain in China using an IBM blockchain built through the Hyperledger Project, an open-source group created by the Linux Foundation. IBM was a Hyperledger Project founding member, along with Accenture, Intel, JPMorgan, Wells Fargo and others.
Jerry Cuomo, IBM’s VP of blockchain technologies, told Yahoo Finance that 2016 began with “blockchain tourism,” companies expressing public interest in experimenting with blockchain, but not necessarily doing anything real. Ramesh Gopinath, IBM’s VP of blockchain solutions, now says “there has clearly been a transition from experiments to real deployments.”
To be sure, the examples of real deployments are still lacking. The average consumer doesn’t know or care about blockchain, and skeptics dismiss all the “blockchain-without-bitcoin” talk as just talk.
On the bitcoin blockchain, “miners” upload transactions in bundles called “blocks” and are rewarded in bitcoin as an incentive for mining; the transaction records are permanent and immutable. Bitcoin entrepreneurs insist that the entire point of a blockchain is negated if banks try to apply the same technology in a closed, permissioned context, without a digital currency.
Some say banks will eventually come around to the uses of bitcoin itself. Balaji Srinavasan, CEO of 21.co, compares it to old narratives around online dating. “It was like, it’s for nerds, it’s for nerds, it’s for nerds,” he says, “and then suddenly, oh, here’s Tinder, and now it’s totally flipped and normal and you’d be crazy not to date that way.”
Even if major mainstream applications of blockchain haven’t come along yet, big companies have at least made real investment, demonstrating a faith that all of this will go somewhere. Companies like Chain now offer “blockchain as a service” (BaaS), building specialized blockchains for these high-profile clients.
Oliver Bussman, former CIO at UBS, writes on his advisory firm’s blog that 2017 “will be the ‘year of the pilot’ for blockchain in financial services, as it moves from a proof-of-concept technology into production, especially in the cross-border payment and trade finance areas,” but adds that broad adoption of blockchain technology will still “happen more quickly outside of financial services—in areas like supply chain management, in e-government, or health care.”
Meanwhile, the membership list continued to grow for R3 CEV, a consortium for banks and financial companies interested in deploying blockchain technology to improve their operations. R3 expects to close a new funding round of $150 million in the first quarter of 2017.
Blockchain hype continued to grow in 2016, and in 2017 it will only get louder.
Bad for bitcoin
The headlines weren’t as kind to bitcoin.
In August, hackers stole $54 million worth of bitcoins from Hong Kong bitcoin exchange Bitfinex, the largest bitcoin exchange in the world by US dollar volume. It was the largest bitcoin hack since the infamous hack of Mt. Gox in 2013.
In December, the peer-to-peer payment app Circle, which had also offered the ability to buy and sell bitcoin and was one of the earliest prominent bitcoin startups, announced it would no longer allow bitcoin buying on its app. The company said it would still use bitcoin as a settlement token on the back end, and it had already been pivoting away from being bitcoin-only when it added the ability to deposit money via Visa, MasterCard or debit card, but the damage was done: news headlines touted that a prominent bitcoin company “gives up on” bitcoin (Fortune), “pulls the plug on” bitcoin (Wall Street Journal) or “says bye-bye” to bitcoin (pymnts.com).
Circle isn’t the first prominent bitcoin startup to move away from bitcoin publicly. Bitreserve, a cloud bank led by former Nike CIO Anthony Watson, changed its name last year to Uphold, dropping the “bit” found in so many bitcoin company names.
And there’s more: the IRS subpoenaed the bitcoin company Coinbase, one of the most well-funded bitcoin startups and provider of the most popular US bitcoin wallet, for personal information of its users from the past three years.
But blockchain, too, had low points in 2016. This month, Goldman Sachs, JPMorgan, and Santander all dropped out of R3. This comes despite JPMorgan CEO Jamie Dimon saying in January of this year that bitcoin was “doomed,” but “the blockchain is a technology, which we’ve been studying… and yes, it’s real. If it proves to be cheap and secure it will be adopted for a whole bunch of stuff.”
Don and Alex Tapscott, authors of the book “Blockchain Revolution,” summarize the banks-and-blockchain hype in 2016 this way in an op-ed at Coindesk: “2016 was the year that many bank CEOs woke up to both the threat and the opportunity of the blockchain. At a meeting of 50 CEOs of the 50 largest banks back in January, most were skeptical. Now most are investigating how this technology might transform their companies and industry services.”
Expect the “blockchain, not bitcoin” narrative to continue among Wall Street circles in 2017, despite the eye-rolls it garners from bitcoin faithful.
But the appeal of bitcoin, as an investment, shouldn’t be underestimated.
Bitcoin, like gold, is seen as a safe haven asset, uncorrelated to the mainstream markets. So when there’s uncertainty in the economy, many investors turn to bitcoin, and when there are tightened capital controls in countries like China, many investors turn to bitcoin.
With the start of a new US presidential administration, there will be some uncertainty, and that might push bitcoin even higher.
Daniel Roberts is a writer at Yahoo Finance, covering technology and sports business. Follow him on Twitter at @readDanwrite.