A man walks through the lobby of the London Stock Exchange in
August.
SUZANNE PLUNKETT/Reuters/Corbis
Several major companies
from across both the technology and financial industries—including
IBM, Intel, and Cisco as well as the London Stock Exchange Group and
big-name banks JP Morgan, Wells Fargo, and State Street—have joined
forces to create an alternative to the blockchain, the global online
ledger that underpins the bitcoin digital currency.
Overseen by the not-for-profit Linux Foundation, this open source
project aims to build blockchain-like technology that can bring a
new level of automation and transparency to a wide range of services
in the business world, including stock exchanges and other financial
markets.
These
companies are creating a new distributed ledger—rather than
embracing the blockchain itself.
“The current blockchain is a great design pattern,” says Jerry
Cuomo, vice president and chief technology officer of IBM’s software
group. “Now, how do we make that real for business? What are the key
attributes needed to make that happen? That’s what this organization
is about.”
Dubbed the Open Ledger Project, this effort is a re-imagining of
several big ideas. The blockchain is essentially
a database that runs across a worldwide network of independent
machines—a database that’s controlled by no single entity but
can still reliably track the exchange of assets, thanks to some
nifty mathematics. With bitcoin, the blockchain tracks the exchange
of money. But it can also track the exchange of anything else that
carries value—including stocks, bonds, and other financial
securities, as well as assets like houses and car titles. And in
recent months, several projects have seized on many of these
possibilities.
Nasdaq OMX—the company behind the Nasdaq stock exchange—is
using the blockchain to oversee the exchange of private stock,
while online retailer Overstock—through a subsidiary called TØ—has
built a system that will allow businesses to
issue and even borrow securities via the blockchain. Just last
week, the Securities and Exchange Commission
approved Overstock’s blockchain stock plan.
IBM and a startup called
Digital Asset Holdings, or DAH, led by former JP Morgan exec
Blythe Masters, have been exploring similar technology, and both are
now part of the rather large group that has agreed to participate in
the Open Ledger Project. Other participants include tech companies
Fujitsu and VMware; Japanese financial outfit
Mitsubishi UFJ Financial Group; and SWIFT, a company that builds
technology for securely driving financial applications. IBM
apparently led the creation of this group effort. Earlier in the
year, the tech giant said it would open source the code for its
bitcoin project, and this code will provide part of the foundation
for the Open Ledger Project.
Their Own Blockchain
The promise of blockchain technology is that it can provide a
more secure, more reliable, more transparent, and more automatic way
of exchanging money, securities, and other assets. It lets you trade
assets as easily as you trade emails today—and you can trade them
without putting your trust in any one person or organization. This
could eliminate many of the slower technologies and expensive
middlemen that clog up today’s markets, says Marley Gray, who
oversees blockchain work at Microsoft. People like Gray and
Overstock CEO Patrick Byrne believe the blockchain can also close
loopholes in the market that allow traders to game the current
system on Wall Street. All this could potentially apply to the
Open Ledger Project. Cuomo says its technology could streamline the
exchange of car titles, track supply chains, and oversee vast
amounts of data from environmental censors.
In
backing a new project, they can exert more control over how it's
built and how it is used.
It’s notable, however, that IBM and its cohorts ar creating a new
distributed ledger—rather than embracing the blockchain itself. In
backing a new project, they can exert more control over how it’s
built and how it is used. Like the Open Ledger Project, the bitcoin
blockchain is open source, meaning the code is freely available to
the world at large and anyone can potentially contribute to the
project. But in creating a new open source effort, giants like IBM
can put themselves at the center of things. Open source is about
giving stuff away. But there’s sometimes a self-interest driving the
magnanimity. One open source project can battle another or refine
its ideas or take those ideas in new directions.
Indeed, some companies involved in the project may feel
threatened by existing efforts to reinvent the financial markets
with the blockchain. State Street bank, for instance, stands to lose
if companies start using Overstock’s technology to borrow stock. In
the US, the stock loan business is a $954 billion market; State
Street, known as an agent lender, is a big part of that. Its future
depends on getting ahead of the game.
Keeping the Blockchain Open
All that said, IBM and its collaborators are not building a
proprietary blockchain. And no one company is trying to run the
project. A large group of companies has set up the project at the
Linux Foundation, which has long overseen the Linux open source
operating system. The foundation is widely respected in the tech
world as an organization that knows how to run truly open
projects—projects where many participants have a say.
At this point, only IBM and DAH have vowed to contribute existing
code (DAH has also contributed the name “Hyperledger,” which could
be used to brand the effort in the future). But Jim Zemlin, who
heads the Linux Foundation, reiterates that this project is
fundamentally designed for widespread collaboration. “We have a lot
of confidence in this process,” he says.
IBM’s Cuomo says there’s plenty of room to use this code to
create something that is like the blockchain but separate. “We are
very excited about blockchain, less as a once-and-only-once
implementation of an idea, but as an idea that can be implemented
and extended in ways that are consistent but enhanced,” he says.
It’s unclear how, specifically, these companies hope to enhance the
idea. But Cuomo believes that the project may also end up
dovetailing with other distributed ledgers.
“Like with the web, there is no one thing to rule them all,” he
says. “There is no one blockchain to rule them all. There will be
multiple implementations of the blockchain. And it will be a sin if
they don’t interoperate and work together.”
More Than One Party
It’s important not only that the Open Ledger Project is open
source, but also that this group aims to create a ledger that’s
distributed—a ledger that spans machines controlled not by one
organization but many organizations. For Microsoft’s Gray, this is
what makes the blockchain so powerful, and why it could be so useful
in the world of financial trading. “A blockchain is basically
worthless within a single work organization. There is no reason to
have this trustless environment within your own corporation,” Gray
says. “You have to have parties that are not yourself.”
Certainly, IBM isn’t the first to take this kind of approach.
Others,
including Ripple, have created alternative blockchains in the
past as a way of taking the idea in new directions. Many believe
that multiple blockchains can actually enhance the distributed
nature of the idea. Though these projects are separate, Ripple is
already leading an effort to create a central protocol that would
allow for communication between multiple ledgers.
In a way, the Open Ledger Project competes with the existing
blockchain—and existing blockchain-based technologies like the
system built by Patrick Byrne and Overstock. But in other ways, it
doesn’t. Judging from what IBM and others have said about the
project, Byrne applauds its arrival. He’s been worried that the big
Wall Street banks would “circle the wagons,” creating tech that
locks everyone else out. But because IBM’s new project is open
source—because anyone can use it and contribute to it—he’s pleased.
He believes in more than a single technology. He believes in a big
idea. “I’m not wed to bitcoin’s blockchain,” he says. “I’m
blockchain agnostic.”
http://www.wired.com/2015/12/big-tech-joins-big-banks-to-create-alternative-to-bitcoins-blockchain/