Rehashed - #7 Institutional Enthusiasm for Crypto Expands
To provide some context, this week I will refer to a framework which Hu Liang of Omniex devised to organize concepts within the crypto universe. I find that this can be a useful tool for conceptualizing the different pockets of this emergent industry.
Framework devised by Hu Liang
I will be concentrating largely on the two upper quadrants: Institutional/Blockchain - A New Technology Stack, and Institutional/Cryptoassets - A New Asset Class.
Distributed Ledger Technology (DLT) vs. Blockchain
In parallel with the development of public blockchains (BTC, ETH etc.), we are observing the emergence of distributed ledger technology (DLT) in the private/institutional sector. Since 2014, banks have rallied together to form consortiums to explore the benefits of such technology; the most notable projects to date being IBM’s Hyperledger Fabric and R3’s Corda.
The largest single entity focused on leveraging distributed ledger technology for private enterprise solutions is Digital Asset Holdings (DAH), led by Wall St. powerhouse Blythe Masters. DAH has a headquarters in Sydney, where they have been working with the Australian Stock Exchange since 2016, leveraging distributed ledger technology to increase efficiencies in trade clearing and settlement.
On home shores, ANZ has been working with IBM to develop private enterprise solutions leveraging distributed ledger technology. ANZ have recently released a whitepaper highlighting how DLT can be used in the insurance industry to create a ‘single source of truth’ for brokers and insurance companies. In their proof of concept, they showed that employing DLT helped to speed up the reconciliation process for insurance payments, while improving the customer experience for policyholders and business partners.
I think that it is important to distinguish the difference between blockchain and DLT; terms that are often mistakenly conflated. Blockchain technology and DLT are solutions with markedly different technological hallmarks and use cases. In fact, general consensus is that blockchain is just one particular type of distributed ledger.
|Distributed Ledger Technology||Blockchain|
|Information sharing between participants who know each other||Transferring cryptographically unique assets|
|Generally deployed in private enterprise solutions||Generally deployed in public space|
|Utilized by businesses that fully intend to follow existing legal frameworks||Censorship resistant and can (in some cases) support anonymous participants|
ConsenSys researcher Brent Xu shows that many of these private enterprise innovations don’t employ many features of a public blockchain like Ethereum, but simply leverage a distributed ledger system.
From "Blockchain vs. Distributed Ledger Technologies" by Brent Xu
It should be noted that because of throughput limitations associated with public blockchains, Fabric and Corda have performance capabilities that Ethereum currently is not able to achieve to the same extent, which is why distributed ledger technology is a better fit for business needs.
Hu Liang’s model would perhaps benefit from having DLT instead of blockchain in the upper left quadrant, which more accurately encompasses the type of technology being developed by the private sector.
Goldman Gives the Green Light
Over in the Institutional/Cryptoasset quadrant, exciting strides are being made. The changing Wall St. narrative from apprehension and severe distaste for crypto, to growing acceptance and adoption, has been thrilling to watch. Confirming rumours that have been circulating for the past few months, Goldman Sachs has officially disclosed their intention to open a crypto trading operation. Following Barclays’ similar announcement last week, it seems that this is just the tip of the iceberg for other bulge brackets to jump in. It is likely that these firms are making moves under intense pressure from clients wanting exposure to the space.
Such action shows that these highly scrutinized, regulated entities are comfortable with entering the space, albeit in small steps to start, and represents a bullish investment on their part in the progressive long-term regulation of the space. Although these developments are extremely promising, there are still formidable operational hurdles to overcome, including custody of cryptoassets on a large scale.
Under the guidance of service providers such as Goldman Sachs and Barclays, we are likely to see large investment managers (e.g. pension funds, sovereign funds, hedge funds) given the opportunity to allocate significant amounts of capital to the space. These institutional movements will not only benefit the cryptoasset space but also offers a second wind to the hedge fund community who have been struggling to provide any alpha over the past decade. Hedge funds with the foresight and agility to embrace this new asset class may find the trading opportunities inherent in the current crypto environment (high volatility, arbitrage etc.) very appealing indeed.
In the News
Google co-founder Sergey Brin touted ethereum in his annual founders’ letter to company employees.
Telegram, the messaging app with 200 million users, cancelled it’s public facing ICO after raising USD $1.7 billion from private investors.
The peace agreement between North and South Korea has been recorded on the ethereum blockchain.
Hodlmoon, a company that makes cryptocurrency-themed ugly Christmas sweaters, said business is booming
Ever wondered where seized or arrested bitcoins end up?
Forbes contributor, Clem Chambers, outlined why bitcoin is taking gold’s mantle as the safe harbour commodity.
Reddit plans to start accepting bitcoin and other cryptocurrencies soon.
May 7- U.S. Regulatory bodies- SEC and CFTC are meeting to determine if Ethereum and other cryptocurrencies are securities
May 8 - AI Forum Research Report Launch – Auckland
May 21 - Blockchain and Cryptocurrencies 101 at the University of Otago
May 29- EOS hodlers, make sure that you register your tokens before the June 1 deadline
May TBD- Centrality to airdrop SNGX tokens to CENNZ token holders
Thanks for your company, stay tuned for next week’s edition of Rehashed.
View previous issue: Rehashed - #6 From Credit Cards to Cryptocurrencies
View next issue: Rehashed - #8 Crypto Markets: Sell in May and Go Away?
About the author:
Capital markets to crypto convert. From Christchurch → Boston → New York, Freddie became intrigued by the potential of the digital asset economy after plucking a book on Bitcoin off a New York library bookshelf in 2016. Her parents are thrilled that she is chasing magic money on the internet.
Disclaimer: The above references an opinion and is for informational purposes only. The opinions expressed by the author do not represent the opinion of BitPrime.