Blythe Masters is stepping down as CEO of Digital Asset Holdings, the blockchain startup she joined to great fanfare in 2015. The former JPMorgan Chase & Co. executive, credited with inventing the credit-default swap, says she is making the decision for personal reasons. But in business terms, her timing is good, too: The Bitcoin bubble of 2017 has burst, and so has that of blockchain.
Masters was the public face of the “blockchain, not Bitcoin” philosophy — the idea that behind the avowedly anti-bank and anti-government cryptocurrency, used to buy dark things in dark places, lay an ingenious technological infrastructure that could be cleaned up and adopted by blue-chip firms and, yes, banks. You’d keep the network of nodes validating transactions securely on a shared ledger, but you’d ditch the coins and the trading. Masters translated this into a story bankers could understand.
It was indeed a compelling tale for firms wanting to cut costs, soup up their tech, and look hip enough to attract smart young graduates who might otherwise flock to Google. Hundreds of pilot projects were launched, stuffy execs eagerly talked up distributed ledgers, and dozens of consultancy reports breathlessly promised rewards. Some said 10 percent of GDP would be on the blockchain by 2027; others said billions of dollars in transaction processing costs would be cut. The bubble inflated.
But, as this column warned several times in 2016 and 2017, the problem was not the idea, but the hard reality of implementing it. Banks could barely handle IT upgrades — how were they going to lead the next tech revolution? Clearinghouses functioned as regulated, centralized entities — why would they disrupt themselves out of existence? And if the priority was cost-effectiveness and security, why on earth would replicating back offices across a network be the solution? As one fintech entrepreneur told me in January: “We tried blockchain for about one day. Everything became three times slower. So we stopped.”
Just as this year marks a reckoning for Bitcoin, which has fallen to about $3,800 from a peak of almost $19,000, so it is proving for corporate blockchains. Forrester Research said in July that 90 percent of blockchain pilots would never fully progress beyond the lab. Gartner Research, which in 2016 put blockchain at the “peak of inflated expectations” on its technology hype cycle, now sees it being in a “trough of disillusionment.”
Does this mean all blockchains will be consigned to the dustbin of history? Not necessarily. Cloud computing went through its own hype cycle before it was reborn as an unsexy but essential piece of IT infrastructure — the “slope of enlightenment,” as Gartner calls it. Maybe this just needs more time: Australia’s main stock exchange, which is working with Masters’ startup on a distributed ledger to process equity transactions, has pushed back its blockchain launch to the middle of 2021 from the end of 2020.
But Masters’ farewell message still feels like the end of an era. Her replacement, AG Gangadhar, has a pure technology background at startups like Uber and Google, perhaps a sign that financial services is no longer hallowed blockchain ground. Bankers spent 2016 and 2017 “going crypto” — maybe hibernating through the winter is a good alternative to reversing course.