IBM has high hopes for blockchain technology. The IT giant announced on Tuesday a laundry list of plans to use blockchain tech and to help developers do the same. IBM (IBM) will offer tools through its cloud service for building blockchain apps, and it will open up IBM "Garages" in London, New York, Singapore and Tokyo for experts to collaborate with developers on blockchain tech.

Taken in tandem with the recent flurry of banks and financial institutions expressing public interest in blockchain, the technology is having a moment. In September, a slew of banks including BBVA, Citi, Credit Suisse, JPMorgan, Royal Bank of Scotland, and UBS all joined a coalition, led by a firm called R3, to implement blockchain technology in banking. In December, five more big names hopped on board, including BNP Paribas, ING, and Wells Fargo.

But the great irony of the banks' interest in blockchain is that the idea of a blockchain for traditional banking defeats the purpose of the blockchain—at least as it has been used thus far, with the digital currency bitcoin. And top executives from some of the very same institutions that have signed on to R3 have separately disparaged bitcoin.

To understand what it is that banks claim to want to do with blockchain, you first need to understand the bitcoin blockchain, which is a public, decentralized ledger that records every single bitcoin transaction. Think of it like a library card in the cloud (not the card you use to take out a book, but the slip inside a book that lists all the borrowers). If you send a friend $5 worth of bitcoin, the transaction goes on the blockchain. If one bitcoin startup acquires another bitcoin startup for $500,000 in bitcoin, that, too, goes on the blockchain. And you can view the blockchain in real time, as transactions are uploaded, at blockchain.info. Transactions are added in bundles, called "blocks," by "miners," who receive a tiny fee in bitcoin as an incentive to mine. Miners use large, expensive computers to find and mine the blocks.

The excitement of the bitcoin blockchain, to people in the digital currency world, is the potential for decentralized applications to be built on top of it that cut out the middle man. And the blockchain can be used to store and send anything of value, so there are companies using it to store documents like property deeds and even marriage licenses.

And now: Enter the banks. They've long stayed away from bitcoin, which has a toxic public image thanks to headlines about bitcoin being used in embezzlement and Ponzi schemes. (Think of Mt. Gox and Silk Road.) MasterCard CEO Ajay Banga said he believes bitcoin "starts bumping up against societal rules, which I worry about," and that, "it doesn’t give me the safety and security of knowing that I am who I am, and I’m paying who I know, which is what traditional currency does." And yet, MasterCard (MA) invested in Digital Currency Group, a venture firm that has itself invested in 65 different bitcoin and blockchain-enabled businesses. JPMorgan CEO Jamie Dimon said bitcoin "is going nowhere... There is nothing behind a bitcoin, and I think if it was big, the governments would stop it." And yet, JPMorgan (JPM) has signed on with R3.

Forget bitcoin, embrace blockchain



Bitcoin is doomed, if you ask Dimon. But the blockchain—now that's exciting. As Dimon said on CNBC last month, "The blockchain is a technology, which we’ve been studying... and yes, it’s real. If it proves to be cheap and secure it will be adopted for a whole bunch of stuff."





Translation: Blockchain is hot, bitcoin is not. We are seeing this sentiment again and again. IBM, in its extensive press release this week about its blockchain efforts, does not use the word "bitcoin" once. Bitreserve, a cloud banking vault launched by CNET founder Halsey Minor and led by former Barclays CIO Anthony Watson, was so eager to shed the stink of bitcoin that it changed its name to Uphold. Blockchain "is so hot right now," writes Erik Voorhees, the CEO of bitcoin startup Shapeshift, while bitcoin "has been left by the wayside, ignored like an embarrassing relative at a family gathering.” (And yet the price of bitcoin is up 24% in the last six months, 85% in the last six.)

What will using blockchain tech even look like for banks? R3's web site says its mission is "building and empowering the next generation of global financial services technology." That's pretty vague. David Rutter, CEO of R3 and a former executive at London-based electronic brokerage ICAP, has said R3 will help banks and financial firms use the "fabric" of blockchain technology.

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