​It is perhaps natural to assume that a transaction on the old West frontier at the turn of the twentieth century is a world away from the future of Fintech and payments. However such an assumption is misplaced for two reasons: (a) the latest and largest Fintech conference took place in the Nevada desert, and (b) there is a growing theme in Fintech of rediscovering old methods, rather than establishing entirely new ones for a digital age.

Take Bitcoin as an example. While its cryptographic functions and underlying architecture are a new and novel way of organizing a decentralized data ledger, one of the most fundamental characteristics of that technology is that a digital coin is essentially a modern bearer bond.

Consider also the insurance industry. In the Georgian docks of London, shipowners would form a common enterprise to create mutualized insurance among a relatively small group. In the intervening centuries, centralized exchanges and actors grew up to meet both the technological and scalability challenges of such capital ventures. However the advent of blockchains now provides the potential for insurance actors to revert to a more mutualized model of risk sharing.

There are many more examples within areas of finance, and society more broadly, where issues such as governance, identity and security can be re-examined in light of the decentralization potential that blockchain provides. As Vitalik Buterin, the creator of Ethereum, noted in an interview with Don Tapscott, there is much work to be done in the area of governance to consider how best to organize and manage the interests of all actors involved in a chain. It may be that old concepts and historical methods will be looked to in order to guide this digital return to a simplified and decentralized system.

What follows below is a summary of some key takeaways from the Money 20/20 conference, focused on blockchain technology. Please reach out to us at the contact details below if you would like to discuss any topic mentioned here.

Blockchain Keynote Announcements

While there were a number of keynote speeches given during the four day conference, there were two particularly significant keynote announcements that impacted the blockchain space directly:

Blockchain Regulatory Developments

On regulatory panels, distinctions developed between the approaches of different regulators, both within the U.S. and around the world, although it was clear that the intent of most regulators is to promote and foster the innovative technology where possible. For example within a panel discussion between the U.S. Consumer Financial Protection Bureau and the U.K.'s Financial Conduct Authority, both regulators sought to put their best foot forward for the audience of industry participants.

The FCA was generally lauded for its 'Project Innovate' effort. Project Innovate allows companies to apply for the program and, if they are found to be truly innovative, be accepted onto the program. This gives companies a direct contact person at the FCA with whom they can discuss any problems and gain guidance. The program also allows companies to take advantage of the 'sandbox', meaning it can test on a small scale with limited sectors of the market, using initial exemptions or more limited authorizations than would normally be available.

The CFPB has also sought to be more proactive in their approach to the industry. The CFPB discussed its 'Project Catalyst', and explained how it hosts 'office hours' in cities such as San Francisco and New York, speaking directly with industry participants, answering questions and providing broad guidance. While the CFPB is not capable of providing advance advisory guidance to participants about the regulatory treatment of certain activities, it advises market participants to look at prior guidance, rules and enforcement actions for guidance as to likely outcomes (which is a similar process to other U.S. regulators).

The CFPB has also stated that it will issue (revocable) No-Action letters. It is unclear how widespread this practice is likely to be, although such guidance would not bind or affect the jurisdictions of other regulators who may have overlapping jurisdiction over entities or activities.　 The CFPB stated that its criteria for such letters are two fold: (a) does the proposed activity have a consumer benefit, and (b) is there regulatory uncertainty?

On other regulatory panels, discussion turned to the use cases and rising legal issues facing the industry. While the use cases of blockchain are not confined to finance, one of the key concerns of regulators globally is resiliency. A number of global regulators were cited with approval by the panel, the UK, Australia, Singapore, South Korea and Japan in particular as being regulators who were ahead of the curve. The U.S., primarily due to the balkanization of the regulatory system, does not appear to be in a position structurally to take advantage of the same opportunities. This can be contrasted with the lead the U.S. took in the Internet in the 1990s, and there is a sense that perhaps other countries are eager not to miss out on this next wave of innovation.

While education remains a key component of ensuring appropriate regulatory engagement (at all levels of institutional decision making), it was acknowledged that blockchains themselves represent an olive branch of sorts from business to regulators. The capacity to monitor transactions and exchanges in real-time and verify identities presents an enormous opportunity for regulatory advancement. The challenge for those companies engaging with regulators is to maintain their education efforts, and ensure their communication and media policies are effectively presented to those outside the industry.

Blockchain Industry Developments

The ideological debate between private and public blockchains has matured somewhat over the course of 2016, although there are still disagreements over the role and efficacy of both models. For some, the use of private chains is an entirely necessary measure for use within financial services, without which progression is unrealistic. For others, the true benefits of blockchain technology can only be unlocked through decentralization. One of the more interesting viewpoints was provided by Joseph Lubin of ConsenSys, who stated that in his view private chains and consortia represented a necessary stepping stone, after which better developed public blockchain systems could be deployed at scale after an approximate three year timeframe.

In the same panel, Yolanda Goettsch of Nasdaq discussed the success of Nasdaq's new Linq equity platform as well as a trial of blockchain-based proxy voting that Nasdaq's Estonian subsidiary was testing. As the conversation developed among the panellists, a distinction soon emerged between their opinions regarding the scope and scale of necessary change required within capital markets infrastructure. While Goettsch pointed to the liquidity and transparency in the existing equity trading system as a positive element of the status quo, and questioned the wisdom of a reduction in settlement from T-3 to T-0, given how such a change may simply front-load verification and other procedures, other speakers were sceptical of this limited vision.

Emmanuel Aidoo of Credit Suisse pointed out that many, if not most, of the participants in that market would prefer instant settlement. In addition, there would be benefits from a collateral reduction perspective. Judd Bagley pointed out that from a regulatory standpoint, the benefits of the technology are clear with the ability to tap directly into data flows. For example, Bagley believes that the investigation into the 2010 flash crash would not have taken four years to complete in a blockchain ecosystem.

Another key talking point of the conference was the growing trend of partnership between established finance players and smaller blockchain startup companies in a variety of consortiums. On a panel entitled 'All Together Now: How Bank & Tech Consortiums Are Shaping the Future of Blockchain', Chris Church of Digital Asset Holdings stated that the expectation for Digital Asset Holdings is that roll-outs will happen in late 2017/early 2018 for initial use cases, with full, global adoption happening at a point in time far beyond that. It may be that it takes three years or so for people to truly vet the technology in the wild before it is trusted for widespread adoption.

While some ultimately saw blockchain as an intermediary price evaluation tool, other sensed that market participants and regulators may prefer the ease of use of a centralized market actor, such as DTCC, out of pure convenience (particularly given the governance issues that blockchains currently pose). While this view was challenged on the basis that regulatory challenges are likely to be local, whereas blockchain adoption will be global, it was generally acknowledged that many such intermediaries' roles will inevitably be altered regardless of the public/private distinction.

The consortium panel also discussed interoperability and the risk of protocol balkanisation. Although this risk was acknowledged, the sense was that just as programmers live with multiple different languages, so too could blockchains. Brian Behlendorf of Hyperledger believed that the key question is finding the right tools from each protocol and ensuring they are applied in the most efficient manner possible. It is likely therefore that collaboration between the likes of Corda, Fabric, Hyperledger and other protocols will occur over time.

Blockchain Challenges and Next Steps

In terms of key challenges facing the industry, governance and identity were the two key issues consistently identified.

One of the most interesting sessions was an interview of Vitalik Buterin by Don Tapscott, the author of 'Blockchain Revolution'. After an introduction covering the basics of the Ethereum blockchain (i.e. a multi-purpose decentralized computer capable of smart contracts and other coding using the solidity coding language), Buterin gave his view on the disruption blockchain technology was bringing more generally (for example the potential for mutualized insurance mentioned at the beginning of this article).

In terms of progressing and 'maturing' the sector, Buterin stated that governance was the next major area of research and focus. Bitcoin, for example, has a strange bicameralism of developers and mining firms, Dash has direct voting by token holders, whereas Ethereum has the Ethereum foundation (however Buterin noted that the governance had become more community-based following the most recent DDOS attack on the Ethereum network and subsequent partial migration by developers to a third party client). Don Tapscott summarized that decentralization should not mean disorganization and there is much work to be done to ensure appropriate governance models are developed.

A core theme of the conference was the importance of identity and the intersection with blockchains and cybersecurity generally. One of the key growth areas within this is biometric validation, which to date has been driven forward within the payments space. In a panel entitled 'Biometrics Innovation & the New Password', there were three main reasons cited as to why the time had come from broader biometric adoption: (a) the technology has progressed, with extensive smartphone adoption; (b) the consumer experience is trending towards easier forms of verification; and (c) security risks mean online data is becoming more exposed than ever before.

This biometric panel noted the inherent deficiencies of the password verification model and discussed the variety of replacement options, including device, finger print, face, voice, retina and gait security. The panel agreed that the most optimal outcome would be a combination of methods, creating layers of security. These layers will become increasingly important as the number of attach vectors arising from new technology such as the internet of things grows.

Some challenges to identity implementation were expressed, including interoperable standards, as well as a seamless consumer interface. If implementation occurs at too early a stage, frustration and rejection by the mass market is likely to occur. Legally, the key issue is data privacy and there is some guidance from regulators and industry bodies (such as the European Commission and the FIDO industry alliance in the U.S.).

Finally, on a panel entitled 'Investing in Blockchain Tech: Insights from Corporate & Venture Investors', there was much optimism expressed about the state of the industry and the innovations coming from it (such as the potential of the appcoin funding model), but the panel noted how a major barrier to adoption was the suboptimal user experience. There was a consensus that the industry really needed to see a robust success story in 2017 to ensure continued growth.

The perennial question was often asked of how soon will widespread adoption and disruption arrive, with a variety of answers given. However, the overall mood was bullish. If 2016 was the year of proof of concepts, expect 2017 to be the year of live deployments. Fundamentally blockchain technology is about removing layers from interactions and markets. By reducing layers of intermediaries and the current composite technology solutions, the promise of simplified exchange on the digital frontier is rapidly gaining pace.