Executives from the world's biggest banks and financial firms gathered at the World Economic Forum in Davos this week and wrestled with the same question: could bitcoin and blockchain technology resha
Executives from the world's biggest banks and financial firms gathered at the World Economic Forum in Davos this week and wrestled with the same question: could bitcoin and blockchain technology reshape finance?
At a panel called The Transformation of Finance, Christine Lagarde of the International Monetary Fund warned that digital currencies could destabilize the financial system while serving criminals. Yet she acknowledged benefits: lower costs, better value, and access for the unbanked.
Deutsche Bank co-chief John Cryan showed little interest in bitcoin but saw potential in blockchain. He told the panel about the real issue banks face. "The rules are on data, the new regulations are on data. And the obligations of banks are to report on data," he said. Blockchain, he suggested, could prove useful for digital identity verification if the G20 endorsed the effort and the U.S. took the lead.
Bitcoin couldn't solve one basic problem, Cryan argued. It failed to perform the three core functions of money: a medium of exchange, a store of value, and a unit of account.
Citi's chief economist Willem Buiter held a harsher view. "We know that Bitcoin itself is a complete failure and shows the number one law of programming and software: that anything that can be programmed can be hacked. So nothing is completely secure," he told reporters in Davos.
But Mastercard saw promise in blockchain. The company's chief innovation officer Garry Lyons told Business Insider that his team was "very, very interested" in the technology. He acknowledged the hype sweeping Davos. "It's not just the industry that's excited about blockchain – it's the world, everyone. Even at Davos, every single tech panel I have gone to mentions blockchain and some people call it 'the second coming,'" Lyons said.
Still, Mastercard held back from racing forward. "We don't want to, and no one wants to, be blindsided by rushing into it as the technology is still developing," he explained.
Last fall, Mastercard put money behind its interest, investing in Digital Currency Group, a venture firm run by Barry Silbert. The firm built a portfolio of early-stage companies across the blockchain and cryptocurrency space. Lyons framed the investment as a way to monitor the field without overcommitting. "The primary reason we invested in DCG is that it's connected to 15 different others and they have their fingers in the right pies, so we've got the right engagement right now to see people experimenting with the underlying tech," he said.
"Like the rest of the world, we're interested in seeing where blockchain technology goes and that's why we invested in DCG."
UBS made a different kind of commitment. The Swiss bank donated code for a blockchain-based trading platform to the HEAL Alliance, a nonprofit that funds HIV research. Engineers built the code at the UBS Innovation Lab in London. Finclusion Systems, a fintech startup, is developing the code into a full platform for issuing social impact bonds.
The HEAL Alliance wants to launch what it calls a "Smart Impact Bond," raising as much as $10 billion on blockchain to fund research and cure centers for HIV. The organization plans to test regulatory compliance from January 21 through April 20. If the tests pass, the Alliance will take the bonds to market with banks and partners.
Microsoft, Intel, the HIV Cure Initiative and UC San Francisco's UCSF-GIVI Center for AIDS Research are helping develop the project.
