Lightning Strikes the Sector

I took a hiatus from the newsletter last week, while meeting with entrepreneurs and speaking at SXSW in Austin. Similar to what I saw (at the very different gathering) at Davos in January, much of the conference chatter revolved around blockchain technology. Almost on cue, last Sunday night John Oliver broadcast an episode (link below) focused on cryptocurrencies and blockchain. If you haven’t seen it and want a good laugh while gaining a better cultural understanding of the sector, I’d encourage you to watch it!

Ahead of more regulatory concerns, cryptocurrencies entered a bear market (with Bitcoin down to $7200 and Ether near $500) this past week before recovering earlier today on a statement that the FSB did not see cryptocurrencies as a risk to the global financial system. This news came as the G20 Summit got underway in Buenos Aires — many had expected a more heavy handed approach to come out of the Summit.

Christine Lagarde wrote a post on the IMF’s blog last week titled The Dark Side of the Crypto World, which provides a case for how blockchain technology can be used to address the very concerns that many have regarding the technology. An excerpt below:

• Distributed ledger technology (DLT) can be used to speed up information-sharing between market participants and regulators. Those who have a shared interest in maintaining safe online transactions need to be able to communicate seamlessly. The technology that enables instant global transactions could be used to create registries of standard, verified, customer information along with digital signatures. Better use of data by governments can also help free up resources for priority needs and reduce tax evasion, including evasion related to cross-border transactions.
• Biometrics, artificial intelligence, and cryptography can enhance digital security and identify suspicious transactions in close to real time. This would give law enforcement a leg up in acting fast to stop illegal transactions. This is one way to help us remove the “pollution” from the crypto-assets ecosystem.

Lagarde has been one of the more even-keeled voices on the topic for the past couple of years and her comments show a sophisticated understanding of the fact that blockchain technology 1) is not going away and 2) can be used for beneficial purposes.

Lastly, while cryptocurrency prices remained volatile over the past week, underlying blockchain infrastructure continued to make strides, with the Lightning network entering the Bitcoin mainnet. I have followed the progress of Lightning technology for the past 2.5 years, and this is a significant announcement that could lead to the scaleability of the Bitcoin blockchain by allowing microtransactions and faster transactions utilizing Bitcoin. Currently the network is hampered by high transaction fees and latency — Lightning is one of the more promising technologies to address these drawbacks. Every week I see more exciting developments from technologists and entrepreneurs who are solving tough challenges in the sector — which makes me more bullish than ever. Broader adoption will take time but is getting closer and closer to reality.