Sunday, 27th November, 2016
| This isn't goodbye...
TL;DR The recent departure of three big banks from financial consortium R3CEV isn't the bad news it might initially seem. Rather, it's a sign of a sector that's growing up. (Read more in THE TAKEAWAY below.)
TOP 5 STORIES ON COINDESK And the winner is… We launched a survey on blockchain and cryptocurrency influencers, and we want your vote! Please let us know who you think deserves the title of 'Most Influential in Blockchain'. Vote here.
Not yet. In an interview with CoinDesk, MoneyGram’s Peter Ohser reiterates his scepticism that bitcoin will disrupt remittances, but he admits that blockchain technology could streamline back-office processes in finance. However, MoneyGram won’t be adopting the technology any time soon, preferring a “wait and see” strategy. Read more.
Consortium funding. At least 30 banks (out of the 42 original members) are expected to participate in R3’s $150m funding round, according to a source close to the deal. The resulting structure will give the banks 60% of the company, leaving R3 with 40%. This announcement came less than 24 hours after Goldman Sachs and Banco Santander announced their decision to leave the group. Read more.
Energy flow. In what could be a significant step towards decentralized electricity supply, New York-based blockchain startup LO3 has partnered with Siemens to work on ethereum-powered microgrids that enable participants to sell excess electricity to other stakeholders. Read more.
Extended battle. As we reported last week, the IRS has requested access to Coinbase’s records of client transactions from 2013-2015. Coinbase has said that it will fight the petition. The first major court date won't take place until mid-February. Read more. More Blockchain News →
QUOTE OF THE WEEK "It seems odd to think about governance as dependent on, or intertwined with, technology. But it's certainly true that technology shapes, to some degree, the possible range of governance systems available to us." – Josh Stark, in " Making Sense of Blockchain Governance Applications" |
THE TAKEAWAY
Goldman Sachs, Banco Santander and Morgan Stanley have left the financial consortium R3CEV.
The departures by three of its larger members are being taken by some as a sign that blockchain enthusiasm is waning, and consortia are losing influence. Neither is true.
While we are not privy to the closed-door meetings that led to the respective decisions (which are apparently unrelated), we can deduce that the banks did not leave because they no longer believe in the blockchain. Between them, they have published glowing reports, invested in blockchain startups, conducted trials outside of R3 and filed a blockchain-related patent.
Some sources hint that they were unhappy with the terms of R3’s latest financing round. But it’s probable that they would have left soon anyway.
Why? Because of the nature of investment banking, and of consortia.
Goldman Sachs, Banco Santander and Morgan Stanley are major players in a highly competitive business. Participating in a consortium is not a natural fit, either in terms of style or objective.
Consortia work well in for-profit sectors if they focus on non-strategic areas. Collaborating with others offers synergies and economies of scale in testing new technologies, and when you’re starting out, exchanging knowledge can significantly accelerate the learning curve.
But when an area becomes strategic, the incentives change.
Differentiation becomes more important, and significant progress weakens the desire to share gains with those scrambling to catch up. As members gain experience and knowledge, they also gain confidence, and are less likely to be willing to give up competitive advantage.
When the three banks joined R3 over a year ago, blockchain was probably not as high on their list of priorities as it is today. Their decision to “go it alone” can be interpreted as a declaration of the increasing strategic importance of the technology to their core businesses, and could even hint at a relatively imminent roll-out of real-world applications.
It's also worth pointing out that the better a consortium does in terms of successful trials and media attention, the weaker it becomes. The greater the number of members, the more complicated the governance, and the more diluted the overall benefits. A greater pool of knowledge is a good thing, yes, but it is difficult to effectively manage when not all the participants are at the same level.
That’s not to say all blockchain consortia are doomed to fail. Far from it. In not-for-profit sectors such as credit unions, sharing is already part of the DNA. Country-specific consortia can wield more influence on regulation than individual institutions. And sector-wide groups perform a valuable function, even if the benefits are transitory.
It’s also unlikely that R3 is running out of steam. Its funding round and the resulting structure do raise questions (is it becoming more like an incubator, or a blockchain services startup?), but are unlikely to stop the innovation. Over 70 members is still a drop in the ocean compared to the potential.
Governance will get more complicated, and we may see further regroupings and reshufflings. As the group continues to grow and as clients’ priorities change, some will leave but more will enter.
In this case, increasing churn is not a cause for concern. On the contrary – it's exactly the opposite.
– Noelle
More background:
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OTHERS ARE TALKING ABOUT...
The mainstream media was a bit gloomy in their blockchain coverage this week, with several reports on the developments at R3CEV (from FT, Bloomberg and Reuters, among others) focusing on tensions in the sector. (See THE TAKEAWAY above for why we don’t think that interpretation is correct).
Vox vented its frustrations with bitcoin, pointing out that there’s not a lot to show for over $1bn in investment. Quartz also went negative, citing our figures on the slump in VC financing in 2016.
On a lighter note, Fast Company talked about the future of blockchain-based energy and the emergence of a new market; VentureBeat discussed the impact of blockchain technology on the IoT sector; and TechCrunch helpfully broke down the potential governance impact of the blockchain into three different perspectives.
UPCOMING EVENTS
SECTOR REPORTS
WHAT WE’VE BEEN UP TO It’s been a short but intense week, with the US team heading off on Wednesday night to join family and friends for the Thanksgiving holiday.
Our first CoinDesk On Tap event on Tuesday ended up standing room only. We had a blast, and we’re already looking forward to the next one. You can see the video here.
In this week of reflection and gratitude, we want to say THANK YOU for your support this past year. Thank you for reading, commenting, tweeting and forming part of this wonderful community that is helping to shape the years to come. It is an honor to be in this with you. On behalf of all of us at CoinDesk, wherever you are, we hope that you have a lot to give thanks for.
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