Blockchain technology creates countless opportunities for disruption, which in turn threatens incumbents. Blockchain is pervasive among all industries but for this call out we will focus on payments and early enterprise adoption.
We view blockchain as a threat to Legacy Companies, their business models, and their control of present economies. Blockchain is presently disrupting the status quo and Legacy Companies are trying to integrate functions of blockchain to avoid disruption and disintermediation in an attempt to stay relevant. For Example, JP Morgan has been building their own private blockchain called Quorum since 2016, which is a copy and paste of the Public Ethereum Blockchain. They have recently announced the launch of their JPM Coin which will be transacted on Quorum. Over 180+ banks have signed Letters of Intent to use the JPM Coin. The JPM Coin will enable participants in this system to transact 24/7/365 with immediate settlement while incurring fractional fees. JP Morgan is well aware that the days of charging for payments are over. Their business model has been disrupted. Therefore, they are doing the next best thing and that is taking what the market will give them. They are trying to control the transition to blockchain by having other banks and customers transact on their private blockchain. They may no longer make money off charging for payments but they can attempt to retain their clients and continue to solicit other financial services such as wealth management, lending.
Central Banks are integrating a digital coin for transaction settlement as well. The use of blockchain is quick, less error prone, and cheap. Sending a wire from a large US Bank to a small international back is slow, costly, and error prone – many times your wire can get lost and take several days to recover. Digital Currency is very different than Cryptocurrency. Legacy Companies and Central Banks are presently adopting digital currencies rather than cryptocurrencies. The key differences are cryptocurrencies provide anonymity and are usually decentralized (Bitcoin, Ethereum, Zcash) whereas digital currencies of interest to Central Banks and Legacy Companies are controlled on their central servers and do not provide anonymity. These digital currencies are also less volatile and will be backed by dollars, treasuries, or another sovereign nation’s currency. All cryptocurrencies are technically digital currency but not all digital currency is cryptocurrency.
We believe that we are in an era of technological disruption, which is a threat to all incumbents. They are fearful of disintermediation because of the countless possibilities of these technologies, but they are not harnessing the true value of distributed ledger technology by maintaining their closed, centralized blockchain networks. To truly capture the value of blockchain technology these systems need to be opened up and become more decentralized. This will be the opportunity of the future. This is akin to the early 90’s of the Internet. Everyone feared what they did not know – the Internet. Enterprises believed it made most sense to build out and use Intranets but Intranets were very limited and kept each enterprise in their own silo. Companies that began to exit their silo and connect their Intranets to the public HTTP Internet Protocol were able to connect with anyone else using HTTP – sending and receiving data. We envision a similar roll out. Enterprises will start with centralized, private blockchains (like JP Morgan’s Quorum) but will eventually transition to their private blockchains connecting to the public blockchain and their private blockchains connecting to other private blockchains through a public blockchain.