Jamie Dimon, chief executive of JPMorgan Chase & Co, speaking at a bank investor conference said Bitcoin “is a fraud” and will blow up. Further, that if any JPMorgan traders were trading the crypto-currency, “I would fire them in a second, for two reasons: It is against our rules and they are stupid, and both are dangerous.”
I’ve said it before. I don’t find Bitcoin to be a currency and it’s utility is suspect. But like Tesla stock and Dutch tulip bulbs, people will trade on the item if there is a dollar to be made. I don’t think it’s a fraud. There is value.
The interesting part of Bitcoin is the underlying blockchain technology that traces who holds all of the bitcoins in circulation. Imagine if Bank of America, JP Morgan, US Bank, Wells Fargo and all of the other banks used one ledger to track the movement of cash and each of them had a copy to prevent fraud. That’s blockchain, a distributed ledger.
Blockchain has uses outside of the tracking of money. It can be used to track almost anything.
Delaware and Nevada passed laws this summer allowing Blockchain to be used to track corporate records. It sounds innovative, but I’m skeptical.
The grand theme of Blockchain is trust. Since many people have copies of the distributed ledger, you prevent fraud. Because everyone has direct access information, you cut out intermediaries who would intervene to charge a transaction fee.
Most corporate records don’t fall into that category. There is a single instance and that is all that is needed.
The exception is stock ownership. I see some utility there to track ownership of a firm’s shares. For it to work, all of the shareholders and the firm would need to have the Blockchain ledger. For a small firm, it’s probably overkill. For a large company there may be some economies of scale.
I’m not sure how it works for a public company. Trading in public companies is fraught with issues. The markets do more than just transfer ownership. Their main role is pricing the shares. Blockchain could be used for the record-keeping but not does not lend itself well to the pricing.
For Bitcoin, Blockchain does a great job of tracks who holds the currency. The pricing comes from converting bitcoins into dollars which is outside of Blockchain and done by intermediaries who charge a fee. I assume the same would true if company moved the trading of public company shares onto blockchain.
The other problem is whether one Blockchain instance could address the shares at multiple firms or would there need to be separate instances of Blockchain. That also has some scaling issue.
I think there are tremendous uses for Blockchain to share value and information across firms and eliminate transaction costs. In these early days, it sounds more like people with a hammer thinking everything looks like a nail.
Sources:
- The Truth About Blockchain by Marco IansitiKarim R. Lakhani in the Harvard Business Review
- Overstock Begins Trading Its Shares Via the Bitcoin Blockchain by Cade Metz in Wired
- Companies Can Put Shareholders on a Blockchain Starting Today by Jeff John Roberts in Fortune
- Nevada Precedes Delaware In Blockchain Legislation by Keith Paul Bishop
- Day 7 of One Month of Innovation in Compliance – Blockchain will Transform Compliance
- How Blockchain Will Change Organizations by Don Tapscott and Alex Tapscott
- Delaware Blockchain Move Drawing in Private Companies, Law Firms by Sara Merken
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