2015 saw the bitcoin industry as a whole raise an estimated $1 billion in venture capital funding. And 2016 may see significant investment in the blockchain mechanisms and infrastructure underlying it, though not necessarily leading to investments in the bitcoin sector itself.
Reviewing trends in the blockchain ecosystem, he said that its maturity has been limited due to difficulty in raising funds. But R3, the startup venture building a blockchain for a consortium of the world’s largest banks, has the power to reverse this trend, he pointed out.
“I think that R3 has kind of tipped the entire ecosystem into a different gear. It’s legitimised this notion that blockchains are a technology that is critically important to banking, and at that point, the money is seriously beginning to flow into the field:” he stated
While banks and traditional financial institutions (FIs) are open to the potential and possibilities of the blockchain in reducing costs and enabling more efficient money flows, the branding of the bitcoin blockchain and the virtual currency remains negative.
However, there is belief that banks and FIs will eventually revise this position after realising the advantages offered by an open, permissionless ledger.
Concurrently, blockchain talent will be difficult to acquire, opines Gupta. This is due to a lack of individuals with the necessary expertise and experience in a technology underlying a new industry.
With R3 positioned to bring blockchain technology into the mainstream, it’s possible that a number of startup ventures will emerge with a viable business model. At the same time, this also heralds the start of a possible bitcoin bubble.
Gupta remarked: “It’s already started. I mean, my estimate is that we’re going to see $1 billion come into the Ethereum ecosystem in 2016 alone, and the general estimates for the amount of money going into the entire blockchain ecosystem, including Bitcoin, is on the order of $10 billion.”
This aligns with a general trend of insurance firms and banking houses entering the Bitcoin space, as more corporates become aware of the potential of blockchain technologies. This is evidenced by the increased deal volume that bitcoin startups saw, with 1H 2015 seeing bitcoin startups secure more funding than in the whole of 2014.
Business Insider, citing a leaked JP Morgan report, maintained that the firm was planning to pursue an aggressive investment strategy in the blockchain, big data, and robotics, with JP Morgan maintaining $9 billion for investments in those specific sectors.
According to an Investopedia entry, as of 22 February 2016, Daniel Pinto, who heads JP Morgan’s investment banking business, stated:“To sell a loan is a very cumbersome, time-consuming process; settlement can take weeks”, with blockchain-based processes offering a solution that is simpler, operationally faster, more secure and minimises mistakes.
This is in relation to JP Morgan and Digital Asset Holdings seeking to address various problems. The liquidity mismatch in loan funds and facilitating trades can be conducted with a cost benefit through the blockchain technology, thus addressing concerns over liquidity mismatch common in the banking sector (the mismatch between “market liquidity of assets and the funding liquidity of liabilities” – or a maturity mismatch).
Highlighting Singapore’s Smart Nation initiative which has a serious focus on the adoption and deployment of blockchain technologies, Gupta observed: “There’s just a really, really broad-based push for large entities to get this technology into their systems.”
With MAS engaged in a push towards common standards and exploration of various fintech solutions to develop a ‘smart financial centre‘ – the blockchain among them – the bitcoin sector and its development roadmap are evolving as its matures.
Despite the departure of core developers like Mike Hearn from the Bitcoin project over its view as a failure, Gavin Andresen, the Bitcoin Foundation’s chief scientist, has argued that a long term view of Bitcoin is esential, with a focus on resolving problems such as its scalability.
For now, bitcoin has to contend with technical roadblocks, in addition to grappling with the cultural, economic and legal issues arising from the development and use of a decentralised digital commodity money,