A year ago to the day I published: “Consensus-as-a-service: a brief report on the emergence of permissioned, distributed ledger systems.”
Since then, the paper and portions thereof, have been translated into multiple languages, emailed and downloaded thousands of times, copied word-for-word by many consulting companies and used as a primer for managers and executives at organizations big and small. In short, it helped articulate what was then happening in a new niche industry, one that has grown over the subsequent months.
What has changed and why did it become popular to the point where vendors now use bullet points marketing their product as a “permissioned ledger”?
Before answering these questions I should point out that it was Robert Sams, CEO of Clearmatics, that actually coined the term “permissioned ledger.” He first publicly used it at a Coinscrum event a month before the publication of CaaS. Prior to that he had been using it in private discussions including on a now-defunct mailing list which incidentally involved other notable individuals who still work in the overall “blockchain” space.1
Let’s quickly look at what happened to the market participants that were highlighted in the main body of the report (by alphabetical order):
- Clearmatics: in November 2015 they announced they had closed their seed funding; have also publicly announced their pilot “utility settlement coin” with UBS (note: ‘settlement coin’ is not a cryptocurrency)
- CryptoCorp: rebranded as Blockstack and were acquired in October 2015 by Digital Asset Holdings (DAH)
- Eris Industries: in January 2016 they announced they were selected to be part of the PwC “strategic blockchain portfolio”2
- Hyper (Hyperledger): in June 2015 they announced they had been acquired by DAH. 3 Its namebrand was then donated to the Linux Foundation; see What is the difference between Hyperledger and Hyperledger?
- Ripple (Labs): in October 2015 they announced that their Series A had closed at $32 million in funding with the inclusion of Santander. In January 2016 additional funding from SBI Holdings into Ripple’s Japanese subsidiary was also announced.
- Tembusu System: they had a co-founder dispute that led to dormancy of the company
- Tezos: the project has continued in the background as a part-time project of its creator
- Tillit: rebranded as Ldger and is currently focused on market place lending and structured products; no longer uses Ripple.
If we extend the analysis to the tangentially related projects listed in Appendix A:
- Blockstream: in October 2015 it announced a cryptocurrency product called “Liquid” for wallets and exchanges and in February 2016 announced it had closed its Series A funding of $55 million
- Augur: in October 2015 it concluded its crowdfunding of over $5 million and in March 2016 launched its beta
- SKUChain: in January 2016 it announced its seed funding and in March 2016 joined the Plug and Play FinTech Incubator
- Ethereum: officially launched its Frontier release at the end of July 2015 and then launched a “production” version called Homestead in March 2016
- Pactum: turned from a standalone product into a technology specification and approach – currently being used by ULedger – and being further developed by Bitsapphire
- Symbiont: in June 2015 it announced closing a seed round for $1.25 million and then in March 2016 announced it was creating a new company with Ipreo
- Vennd: in April 2015 it joined the Startmate accelerator and later moved away from the “vending machine” cryptocurrency creation market
What about the rest of the marketplace?
The non-cryptocurrency distributed ledger marketplace has bifurcated into two distinct areas:
- those creating some type of ledger or blockchain; and
- those creating some type of application that connects to a ledger, chain or network
[Note: sometimes those creating #1 are also creating #2 but usually not vice versa]
Altogether, since September 2015, at R3 we have been approached or pitched by around 150 vendors of all shapes and sizes who do something orthogonally related to distributed ledgers.
By and large, most of them are uninvolved with cryptocurrencies themselves: that ship seems to have sailed with the Great Pivot. Perhaps that will change again?
We are currently tracking around two dozen companies that have built or are building some kind of distributed ledger and about the same amount of startups trying to build applications on top of a ledger. 4
Many of these can be seen on slides 21 and 23 of the presentation I published in December:
The end of “Proof-of-work maximalism”
What has resonated with people, especially financial institutions regarding this new market?
Part of it for sure is related to hype. Distributed ledgers and blockchains have been sold as silver bullets and panaceas to all the worlds ills. This exuberance will likely lead to another washout cycle which has happened in many other tech segments (most notably cleantech).
Another reason is that as articulated in Appendix B, while there was latent interest in the cryptographic toolkit utilized by Ethereum and Bitcoin, managers were finally afforded an explanation as to why something like proof-of-work is purposefully expensive and why it is unneeded and undesirable in an environment in which trusted intermediaries with legal contracts already operate in (e.g., capital markets).
In short: CaaS began to untie the narrative and fable that “the only secure network is one that involves proof-of-work.”
While they are not the only entities experimenting with blockchains, regulated financial institutions have also spent the past year looking at the consequences of using pseudonymous consensus methods, discovering that platforms like Bitcoin fundamentally lack definitive settlement finality which was briefly discussed on page 22 and 23 in CaaS.
The reaction on social media to this over the past year has ranged from acceptance all the way to angry threats. Yet fundamentally it is empirically clear that the marketing spin which proof-of-work maximalists have used — such as “hardening a chain” — is simply a misapplication of Bitcoin’s Sybil protection. But that is a topic for another day.5
This was supposed to be a brief post so we have to pass on dovetailing into the myriad of other interesting changes in the landscape.
Regular readers may have noticed just a few posts on this site over the past few months. Why? Part of this is because the content I do write is typically sent to R3 members only.
What about other discussions?
Even though the capital markets have largely settled on a specific class of ledger — one that is integrated with the existing legal system without any type of cryptocurrency or proof-of-work — the debate around public versus private blockchains will likely continue into the year by enthusiasts.
For those involved in regulated capital markets who are looking at solutions to problems with a set of requirements involving post-trade activities of clearing and settlement, it is worth pointing out that yesterday Richard Brown unveiled the project he has been working on the past 7 months: Corda.
A year from now the distributed ledger landscape will likely look a lot different than what it did in 2016 let alone 2015. It will be interesting to see how many projects are still replicating and reusing older “blockchain” designs versus building systems that are fit-for-purpose like Corda.
- Source: I am an advisor to Clearmatics and a member of the mailing list. This included: Vitalik Buterin (Ethereum), Vlad Zamfir (Ethereum), Dominic Williams (Mirror / String), Jae Kwon (Tendermint), Andrew Miller (IC3 / University of Maryland), Nick Szabo (Mirror / Access), Jonathan Levin (Chainalysis), Dave Hudson (Peernova), Richard Brown (R3), Zaki Manian (SKUChain) and about a dozen others. [↩]
- According to Dominic Williams: 21.91% of all tweets using the term “marmots” involved Eris Industries and Preston Byrne (its COO). [↩]
- Disclosure: I was an advisor to Hyper. [↩]
- It is a noisy startup ecosystem, but once you filter out companies reliant on cryptocurrency price appreciation there aren’t hundreds or thousands of startups to keep track of. [↩]
- See also Anchor’s aweigh [↩]