In my first official engagement as the Blockchain Meldrew, I was invited to the London Business School (LBS) to take part in a panel discussion on the technology with Ross Laurie from the accountants Deloitte, Jay Best from Bitcoin people VentureBoost and Calogero Scibetta from one of my very favourite blockchain startups, Everledger. It turned out to be a lively and enjoyable discussion and with some great questions from the audience.
If Roger Ver is the Bitcoin Jesus, I am the Blockchain Meldrew.
One of those questions led me to suggest to the students that they use the steam engine as a way of thinking about the blockchain in economic and business terms. I’ve often used the analogy of steam engine technology to explore the potential for replicated distributed shared ledger technology (SLT) and to explain why I am unconvinced that bitcoin will have long-term traction despite having to buy Matt Harris a ton of Danish pastries at Money2020 (I bet him that Bitcoin would be under $200 by Money2020 and was totally wrong).
I didn’t really make him eat all the pastries, the money went to charity!
Personally, I have no reason to imagine that Bitcoin is the cryptocurrency future of money any more than people might have imagined that the first steam engine, used to pump water out of mines, would be the steam engine used to power the Mallard locomotive to the world speed record for railway engines more than a century later.
There is one big difference though: Bitcoin is open, whereas the steam engine was encumbered by the patent system that retarded its development. The lesson of history is unequivocal and well-studied. And that lesson is that the rigorous enforcement of patents around the steam engine slowed innovation to a crawl. Bolton and Watt made the critical invention that transformed that inefficient steam engine used to pump water into an efficient engine that could power an industrial revolution: the separate condenser. They patented it in 1777, and until that patent expired in 1808 there was virtually no innovation in steam engine design and the efficiency of working engines barely changed. In fact their patent gave them absolute control over the development of the steam engine and the result was an average performance improvement of less than 4% per annum. Once their patent expired, the rate of growth more than doubled to 8.5% per annum and the multiplying effect of exponential growth meant that the performance exploded to the point where you could put an engine on wheels and use it to carry passengers.
Not only did Watt use patents to hold back competition, his own efforts to invent a better engine were sabotaged by the same structures, since he couldn’t use the more efficient Pickard system (for converting rotary motion) until James Pickard‘s patent expired in 1794. For further reading, if you as much of a nerd as I am, start with “Collective invention during the British industrial revolution” by A. Nuvolari in the Cambridge Journal of Economics, vol. 28, no. 3: 347–368 (2004).
My point is this: Bitcoin is like pumping water out of mines and the bitcoin blockchain is like the Newcomben engine invented for that purpose. It is hopelessly inefficient but it does that one thing (pumping water) well enough to be adopted. However, someone will come along and invent a better and more efficient blockchain and progress toward the mass-market use of shared ledger technology (SLT) to both make some processes more efficient but also to create entirely new businesses. And, unencumbered by patents (unless the US Patent Office is daft enough to grant patents for trivial and obvious uses of SLTs) the progress will be rapid.
All of which leads me to reflect on my discussion panel at Money2020 where Richard Brown from R3, Alex Batlin from UBS and Simon Taylor from Barclays joined me to talk about the R3 consortium’s work in blockchains for financial services and their experiments to date with double-permissioned shared ledgers for banking. The very week before this panel, R3 had announced their Corda platform. It is not a blockchain.
I got the easy panel to moderate.
Richard Brown from R3 will be talking about Corda next week at our our 19th annual Tomorrow’s Transactions in Forum in London next week. He’ll be joined in the shared ledgers session by Intel (we have been working on a very interesting project for Intel in the blockchain space) and Ripple. So if you want to tap in to the leading edge of serious business discussion on the topic, come along. As always, the Forum (this year sponsored by our friends from WorldPay, VocaLink and Oslwang) will be limited to 100 people, so head on over to register for a place right now. Thanks to the amazing generosity of the sponsors, it’s only £295 for both days – you’d be mad to miss Barclays, Mondo, Fidor, Equens, Clearmatics, the FCA, Shell, Samsung Pay, World Remit, Visa Europe, Curve and many others in an environment of genuine discussion, debate and learning. See you there.