A Blockchain Blockbuster? Get Me a Double Latte Please!

Intercontinental Exchange (ICE), the US-based firm that owns the New York Stock Exchange (NYSE) and is transforming the way equities, options, derivatives and disruptive financial instruments, announced two things last week.

First, this Fortune 500 company which started out in 2000 by transforming the energy markets “by creating an electronic marketplace that removed barriers and drove transparency and access,” announced Friday that it plans to launch a digital assets platform and a bitcoin futures product called Bakkt.

This new platform will leverage Microsoft's cloud to build "an open and regulated, global ecosystem for digital assets," according to the company’s press release, allowing individual investors all the way up to large financial institutions to trade, store, exchange and otherwise spend digital assets over a trusted, blockchain-based worldwide network.

Second, ICE announced a partnership with Starbucks, whose mobile payments application is the most popular of its kind in the world, with over 20 million people using the app to pay for their morning, afternoon and evening joe, according to research firm eMarketer. In the future, that mobile app will offer bitcoin as an alternative to cash.

“As the flagship retailer, Starbucks will play a pivotal role in developing practical, trusted and regulated applications for consumers to convert their digital assets into US dollars for use at Starbucks,” said Maria Smith, the coffee company’s vice president for partnerships and payments, said in a press statement.

Wait, what just happened? A single, global, trusted, distributed, decentralized blockchain-based network a trader on Wall Street can use to buy their coffee in the morning, before the opening bell, then use to trade any number of instruments with any number of global, institutional counterparties?

Looking back at the track record of disruption of global trading, triggered by the rapid adoption of the Internet and related private IP networks, spurring the rise of electronic trading, and the near collapse of traditional stock exchanges, ICE, along with the iconic NYSE, is the perfect 800-pound gorilla to bring bitcoin and other cryptocurrencies into the mainstream.

And yet, what 800-pound gorilla have you met who would have been clever enough, creative enough and bold enough to ink a deal with one of the world’s largest and most well-known consumer brands just after breaking the news on the institutional front?

It’s going to be interesting to see how the crypto exchanges respond to this, particularly when you extend the inevitability of regulation on crypto trading. Exchanges from the beginning were brought into being to protect investors, providing a legitimate, liquid and fair marketplace environment to ensure transparency and liquidity.

ICE, the NYSE and other “previously traditional” traditional exchanges have decades and even a century of experience working with regulators, like the Securities & Exchange Commission in the US, to provide public markets which operate efficiently because they are open and fair.

Consequences for cheating have been severe, and while the world of crypto initially deflected attempts to regulate given the nature of their mission (decentralized trading and commerce with power-to-the-people as an engine for passion and then growth), crypto exchanges have been more than cooperative in working with regulators to figure things out.

ICE is smart to keep their new venture a true start-up.

“Bakkt is designed to serve as a scalable on-ramp for institutional, merchant and consumer participation in digital assets by promoting greater efficiency, security and utility,” said Kelly Loeffler, CEO of Bakkt, in the press release announcing the startup. “We are collaborating to build an open platform that helps unlock the transformative potential of digital assets across global markets and commerce.”

Bakkt says its ecosystem will include federally regulated markets and warehousing that work alongside applications for merchants and consumers, and said it is working on establishing new protocols for managing the specific security and settlement requirements of digital currency.

Azure is in on the game as well, given that Bakkt will use Microsoft cloud solutions to create the open network.

“We aim to build confidence in the asset class on a global scale, consistent with our track record of bringing transparency and trust to previously unregulated markets,” said Jeffrey C. Sprecher, chairman and CEO of Intercontinental Exchange (ICE), which owns NYSE and Bakkt.

ICE also plans to offer a one-day "physical" bitcoin futures contract – meaning bitcoin is delivered on a specified date, unlike other offerings that are settled with cash. The product is expected to launch in November, pending U.S. Commodity Futures Trading Commission (CFTC) approval, ICE states.

ICE said that it believes that the regulated venues will create new protocols for managing "the specific security and settlement requirements" of cryptocurrencies.

After the dust settles on these two stunning announcements, what’s next?

We’ve asked a few industry experts to weigh in with their takes.

"This is a fantastic application of blockchain technology for bringing greater adoption to the mainstream,” said Michael Smolenski, CEO, Lightstreams, and former Goldman Sachs technologist. “Next steps are to ensure personal information and user activity are kept private for the individual and not collected and harvested unless specifically authorized by the user."

“Blockchain is fascinating most of us, yet still confusing to many people and organizations,” said Don DeLoach, President and COO of Centri Technology, and Founder and Co-Chair of the Midwest IoT Council and Author of “The Future of IoT” “Its role in our world is gaining unmistakable momentum and is surely not going away. This announcement is an excellent indication of the progress and reflects the various corporate, market, and regulatory considerations beginning to converge along a path that paves the way to mainstream adoption. While there is still a long road ahead, the direction seems clear.”

“Anything that helps to spread the adoption and awareness of cryptocurrencies to the masses is welcome news to us, as that is what is needed for crypto-investing to hit the next level,” said David Sapper, COO, Blockbid. “Allowing businesses to unlock the potential of digital assets through a regulated infrastructure is a step in the right direction for the wider adoption of cryptocurrencies in our everyday life. However, this ICE and the Bakkt platform has the potential to erode some of the trust and transparency that Bitcoin has, as centralised institutions could possibly create financial claims to bitcoin that they cannot prove. For the crypto-investor, it's hard to imagine them transitioning over to Bakkt from their existing cryptocurrency exchanges. The space is not short of competitors, and while most exchanges have unique selling propositions, this is just news of another one joining the ranks. At Blockbid we have complete faith and confidence in what we are going to deliver. Bakkt sounds like a really exciting project and we look forward to seeing how things progress.”

Read the Bakkt introductory press release here.

Edited by Ken Briodagh