Bitcoin ≠ blockchain. Blockchain ≠ bitcoin.
This message bears repeating: You can be pro-blockchain and anti-bitcoin.
Credit Suisse Group AG CEO Tidjane Thiam last week joined JPMorgan Chase & Co. chief Jamie Dimon in throwing shade at bitcoin. Thiam described the digital currency as the "very definition of a bubble."
Meanwhile, both institutions are busy exploring ways to use blockchain technologies in their own businesses. As are dozens of others. Cynics have been quick to infer some kind of hypocrisy here.
After a couple of columns two months ago, one interlocutor contacted me to level that very criticism at Dimon, noting that JPMorgan is exploring blockchain technology via its Quorum platform. I told that respondent then what I'm telling you now: There's no conflict between the two stances.
Bitcoin is based on blockchain technology. But bitcoin is not the only application of blockchain. Ethereum is another. Beyond the ether digital currency, which is now the second most valuable with $28 billion of coins in circulation, ethereum supports many other uses, such as smart contracts. Bitcoin can't do this, and its underlying technology limits it to just one use: transfer of value.
That's one of the reasons why Dimon, Thiam and UBS AG's Axel Weber are among the chorus of people asserting that there's no intrinsic value in bitcoin.
So far, markets have vehemently disagreed.
Those three executives also represent the established financial order, against whom pro-bitcoin anarchists rail. The idea is that if people send money to each other directly, digitally and securely, then the need for global banks starts to diminish. By criticizing bitcoin, the anti-establishment argument goes, bankers are just talking their own book. Frankly, that may be closer to the truth than claims of chicanery.
Yet blockchain technology could be huge for financial institutions, and they know it. Banks are not toiling away in secret while at the same time decrying it as a fraud, as many like to suggest.
The opposite is the case: Many banks' public proclamations about working on blockchain may be more talk than action. This has earned some the nickname "Blockchain tourist," as Gadfly's Lionel Laurent points out, but that doesn't make them hypocrites.
They're just saying that bitcoin isn't the future of blockchain technology, and they can do this because -- unlike many critics -- they know the difference.
Other fancy terms are sometimes used to describe the technology being developed. Distributed public ledger is a favorite -- there's also more talk about distributed ledgers that aren't public -- of which blockchain is just one technical approach, as Antony Lewis of R3 explains.
Lewis, the Singapore-based director of research at this consortium of global banks and government organizations, is part of a team now working to apply so-called "atomic" transactions, where both the monetary amount and a financial security change ownership simultaneously. This could potentially reduce counterparty risk, boost liquidity, speed up processing times and cut costs. It's an example of digital ledger technology that's not bitcoin.
Credit Suisse, a member of R3, last year demonstrated the use of digital ledgers for syndicated loans. A deployment of blockchain, but not bitcoin.
JPMorgan, which quit R3 to go in a different direction, is putting its efforts into Quorum, which calls itself an "enterprise-focused version of ethereum." Another example of blockchain technology that isn't bitcoin.
What critics need to learn is that finance executives aren't skeptical of blockchain. They decry bitcoin because they know the difference, and they understand that digital ledger technologies are capable of so much more.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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