December 31, 2018 / 3:02 PM / 6 months ago

Breakingviews - Blockchain will finally make itself useful

Representations of the Ripple, Bitcoin, Etherum and Litecoin virtual currencies are seen on a PC motherboard in this illustration picture, February 13, 2018. REUTERS/Dado Ruvic/Illustration

NEW YORK (Reuters Breakingviews) - After all the hype, blockchain is due for a breakthrough in 2019. Banks and companies are gradually applying versions of the distributed-ledger technology associated with bitcoin to tasks like settlement. Demonstrating blockchain’s utility, though, will say little about the value of cryptocurrencies themselves.

The technology’s potential for recording and sharing data instantly and securely has captured the imagination of the corporate and financial sector as well as anti-establishment libertarians. The latter dream of money that’s free from the grasp of banks or governments, while the former hope to replace aging back-office technology, increase efficiency and cut costs. Yet a decade after blockchain’s basics were laid down by the elusive Satoshi Nakamoto, no killer app has emerged.

That’s set to change. Banks and exchanges have deep pockets, and their development of permissioned blockchain systems – limited to members of a defined group – avoid the heavy energy use, capacity constraints and governance problems that have plagued bitcoin and upstart platforms like EOS.

So far these efforts have proved the effectiveness of blockchain for uses like securities settlement or one-off transactions like the A$110 million bond the World Bank issued through a distributed ledger in August. In October, the Depository Trust & Clearing Corp, the biggest U.S. processor of securities trades, said testing showed blockchain technology could handle the American equity market’s peak daily volume of over 100 million trades.

In early 2019, Luxembourg banks are expected to start using software from startup Cambridge Blockchain to manage know-your-customer regulatory compliance. Digital Asset Holdings, the venture until recently run by former JPMorgan derivatives boss Blythe Masters, is getting ready to test its blockchain technology at the Australian Stock Exchange with the aim of replacing its clearing and settlement systems by 2021. More such projects are in the pipeline.

Now that the boom in initial coin offerings, which raised some $20 billion in two years, has largely turned to bust amid plunging cryptocurrency values and a crackdown by watchdogs, venture-capital firms may also channel capital more effectively into less flashy but more useful ideas. Bitcoin’s worth has plunged from a peak of nearly $20,000 in late 2017 to under $4,000 a year later: The original virtual currency and its imitators may never reliably become digital gold. But blockchain applications that people can put to good use would be a beneficial by-product.

- This is a Breakingviews prediction for 2019. To see more of our predictions, click reut.rs/2R6H5pG

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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