11/01/2016

We strongly believe that digital assets on the Blockchain will be Fintech’s most successful story in 2016.

By digital assets we mean equities, derivatives, loans and bonds. We do also mean digitized ownership claims or titles to the physical property like land and motor vehicle.

While addressing the American Bankers digital currencies and the Blockchain Conference on July 28th, 2015 in New York City, Blythe Masters (@blythemasters), CEO of Digital Asset Holdings and a former senior executive at JPMorgan Chase, brought out particular reasons why digital asset managers will embrace the blockchain.

“At its core, one of the most obvious problems in financial market infrastructure that we see the opportunity to tackle is a simple fact of settlement latency,

she told a hall full of bankers and asset managers, “that’s the delay in the final transfer of assets which have been committed to change hands but have not year actually done so.”

She went further to point out that, in the U.S., the delay in settlement in asset markets range from days to weeks. “Public equities still operate on a trade day plus three days lag basis,” she explained, “ At the other end of the spectrum, syndicated corporate loans […] market operate on a trade day plus 20 or more days, in other words, by appointment. “

We agree with her on both the account of the settlement latency problem and, more importantly, that the Blockchain technology offers digital asset markets speed that is fit for the internet-driven 21st century.

Blythe Masters
Blythe Masters of Digital Asset Holdings at AB Conference

Colored coins

You may wonder what makes us so bullish about the blockchain and why 2016 is critical in that regard. We will come back to that in a moment.

First, let’s acquaint ourselves with basics of managing digital assets on the blockchain. The widely acknowledged way of owning or transferring digital assets so far on the blockchain is through Bitcoin.

This is thanks to the fact that during Bitcoin mining, arbitrary data can be added to a part of a Bitcoin block known as the Coinbase (yes, that is where the exchange borrowed its name from).

This added data gives a bitcoin transaction some characteristics that will distinguish it from the rest on the blockchain. This is what Bitcoin coloring is all about.

Colored bitcoins can be used as the representation of assets, both digital and physical, on the blockchain. Thus their transfer of signifies the transfer of the assets they represent.

Of note is that assets maintained in this form, just like rest of bitcoin transactions, do not require a third party to facilitate their change of ownership, which makes the cost of digital asset management way cheaper. And this does not compromise security in any way.

Coloredcoins.org (@colored_coins) is non-profit making entity that has worked extensively in making the exploration, development and the adoption of this mode of digital asset management possible. Our CEO and Co-Founder, Marcelo Garcia Casil (@excessuk), is an advisor to this organization.

Now, why do we think digital assets management on the blockchain will be a major success in 2016?

Many blockchain projects will take shape in 2016

Part of the reason we are so optimistic about digital asset management in 2016 is the fact that most of the major projects focused on making digital asset management on the blockchain a widespread are likely to take shape this year.

In the same conference where Blythe Masters spoke, Marc Hochstein (@MarcHochstein), Editor in Chief of the American banker, quipped that “amateur hour is over, and the grownups are coming into the space.” Yes, 2015 was the year everybody seemed to wake up to the realization that the Blockchain is no child’s toy box. However, 2016 is the year when all those who have chosen to get involved will define what the technology will become in decades to come.

A case in point is NASDAQ. It was among the first mainstream financial institution to see the potentiality of the blockchain making trading assets instantaneous in every aspect, including settlement.

This second largest stock exchange in the US began trials of its Nasdaq Linq blockchain ledger technology in partnership with Chain, a blockchain startup, in 2015. There is no reason why this project shouldn’t start scaling in 2016.

As 2015 came to close, yet another mega blockchain project came to light. Open Ledger Project, an undertaking by Linux Foundation, is expected to borrow a lot from Linux’s experience in open source software.

Laying of the foundation is what will happen

About a dozen of major technology companies and financial institutions such as IBM and JPMorgan Chase have thrown their weight behind it. There is no question that the Open Ledger Project has 2016 as the year to prove its viability.

And these are not the only projects in the pipeline. Indeed, as the year 2015 progressed, mainstream financial Institutions and technology companies were coming out of the woodwork to either research the blockchain, invest in startups using it or build their own versions of the ledger.

It is important to note that most of these projects’ end game is managing digital assets on the decentralized ledger.

The number of Blockchain projects in the pipeline aside, this year is not likely to see a reverse on the interest in the technology, especially regarding digital asset management. If anything, there are bound to be more mainstream institutions jumping on board.

It is not lost to us, however, that we are not looking at every share or bond being settled on the blockchain by the end of 2016. What we are anticipating is the laying of the foundation on which all this will happen in the following years.