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Alec Ross
Author & Distinguished Visiting Fellow at Johns Hopkins University
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Big banks once laughed at Bitcoin. Now, Goldman Sachs wants to use its technology.
Something happened last week that I think is going to change the course of history for Bitcoin and for financial technology more broadly.
Bitcoin has not supplanted traditional currencies the way that some of its early adopters imagined years ago. An early signal that Bitcoin would be hard-pressed to gain mainstream acceptance came in the form of mudballs that were thrown at it from Wall Street. JP Morgan CEO Jamie Dimon made a comment representative of the sentiment of many of his peers when he said, “the question isn’t whether we accept it. The question is, do we even participate in people who facilitate Bitcoin.”
Fast forward a few years and Wall Street has discovered that the blockchain technology enabling Bitcoin could save the industry tens of billions a year, so instead of throwing mudballs, they’re now figuring out how to use the technology behind Bitcoin.
I’ve had two conversations with Goldman Sachs CEO Lloyd Blankfein about Bitcoin. In the first, back in 2013, he sort of sneered. In the second conversation, last year, he half-smiled and said, “we’re looking at its technology.”
At its most basic, a blockchain is a distributed database, a sort of ledger, that is protected with encryption and which allows the transfer of goods and services without middlemen. There are a lot of middlemen in the business of transferring payments.
Earlier this week, Goldman Sachs filed a patent application for a new virtual currency it calls “SETLcoin” which uses blockchain technology.
With SETLcoin, Goldman Sachs imagines instantaneous execution and settlement “for exchanging assets, such as securities (e.g., stocks, bonds, etc.) cash, and/or cash equivalents via a peer-to-peer network” according to it patent filing, wiping out the costs associated with these types of asset exchanges.
Goldman isn’t going to start doing business in Bitcoin instead of the dollar, euro or renminbi; it’s taking lessons from Bitcoin and using the blockchain as the computer science protocol for its own cryptocurrency.
In the same way HTML became the protocol markup language for the World Wide Web, the blockchain may have the technological ingenuity to become the protocol for transactions where there is a need for a high level of trust.
I expect Goldman Sachs to do away with one of Bitcoin’s defining features: pseudo-anonymity. By using real names and identities on SETLcoin, Goldman Sachs would near-eliminate the kind of fraud and misuse that has plagued Bitcoin.
The cypherpunks and cryptolibertarians behind Bitcoin’s creation and early adoption must be pulling their hair out. Bitcoin was created in the wake of the financial crisis to provide anonymous financial tools as an alternative to the dominant banking system. For Wall Street to now adopt its blockchain technology is deeply ironic and will probably become very, very profitable.
Alec Ross is the author of The Industries of the Future, to be released in February by Simon & Schuster.
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