IBM is no stranger to cryptography, the underlying basis of blockchain technology. It was instrumental in the introduction of the Data Encryption Standard in the 1960s with the help of the National Security Agency (NSA) of the USA. Therefore, IBM and blockchain sounds like a match made in business heaven. With the rise of blockchain technology, barely a day goes by without a new partnership being formed with IBM.
Blockchain technology is inherent within cryptocurrencies, and many of these cryptocurrencies are aiming to usurp companies such as IBM. IBM is attempting to introduce the corporate world to blockchain technology. It is pursuing an aggressive policy of partnerships, patents, and funding in an attempt to become the world leader of blockchain technology.
IBM has a plethora of partnerships within the blockchain industry. The Hyperledger project created by the Linux Foundation is perhaps the biggest of IBM’s partnerships so far. Hyperledger is a private blockchain for business enterprise. Unlike Bitcoin, which only transfers Bitcoins, Hyperledger can be used to transfer any asset that has value. Hyperledger does not have its own cryptocurrency and likely never will. By trading off aspects of decentralisation, it is able to improve other performance indicators over regular cryptocurrencies.
IBM is not the only major corporation to partner with Hyperledger – others include JP Morgan and Swift. Through the Hyperledger network, IBM has been able to sign further partnerships with major corporations including Ford.
IBM has also partnered with the cryptocurrency Stellar, a competitor of Ripple’s XRP. By using the Stellar protocol, it is creating the IBM Blockchain World Wire, which it hopes will “create the new financial rail that simultaneously clears and settles cross-border payments in real time”. This is quite similar to the aim of Ripple’s XRP protocol. Through the Blockchain World Wire, IBM believes it can reduce costs, increase speed, and increase efficiency. Whilst Ripple continues to try and get partners to use its protocol, IBM may be a step ahead, as according to its website, 97% of the world’s biggest banks are already IBM clients.
Belief in IBM and Bitcoin
IBM is second to Chinese company Alibaba in terms of the amount of patents filed based on blockchain technology. Whilst patents can irk many in the cryptocurrency industry – which has for a long time been an open source society – it still remains to be seen how IBM will licence these patents. As a large corporation, profits are of the utmost importance. Even with such a vast array of patents, there is no guarantee that these will all come to fruition either.
IBM is not only bullish on the use cases of blockchain. Jesse Lund, VP of Blockchain and Digital Currencies for IBM, believes that Bitcoin will rise to a value of $1 million per coin. With such bullish expectations, there is little wonder why IBM is investing so heavily in blockchain technology. Just last year, IBM had 1,500 employees working on 500 blockchain projects.
The private nature of many of IBM’s blockchains will inevitably lead to criticism. The centralised nature of the blockchains being implemented by IBM and many other businesses in essence reduces the need for a blockchain at all. Indeed, Giacomo Zucco has labelled one of IBM’s blockchain projects as practically a “database”. With a centralised authority, the user of such a blockchain would be reliant on said central authority, thereby demeaning the necessity of a blockchain at all. There are also some cryptocurrencies that remain reliant on a central authority as well.
Vitalik Buterin, someone who is no stranger to criticism directed at himself, has also complained about IBM’s projects. He argues that they are misapplying blockchain technology and wasting time.
The criticisms directed towards IBM and blockchain are the common issues highlighted by big businesses investing in the technology. For now, there is no right or wrong way as we haven’t seen true implementation of either cryptocurrencies or blockchain technology. Sooner or later though, we will see who is correct.
When IBM first started investing in cryptography, it did so because it realised that this was a potentially lucrative avenue for the business to invest in. Cycle around 50 years later and the same company appears to be doing it once more with blockchain technology. Whilst they are seemingly believers in Bitcoin, cryptocurrencies do not need to survive for IBM to get a return on its investments. The battle between Bitcoin maximalists who deride such blockchain investment and companies such as IBM will continue to rumble on until one is proved correct.
IBM has clearly bet big on blockchain technology, and if it is proved to be correct, it should be one step ahead of most of the competition.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.