LONDON—The new digital currency entrepreneurs are stripping the bitcoins from Bitcoin, building new iterations of the underlying blockchain technology without clinging to any digital currency token.

Companies like Eris Industries and Epiphyte offer enterprise software integration to allow mainstream companies to harness secure, distributed ledger systems or blockchains. Epiphyte's model will connect enterprise customers with the Bitcoin blockchain. Bitcoin facilitates low-cost, near real-time payments without the various middle-men that are part of a traditional payment.

Eris instead has taken a derivative of the Ethereum open-source blockchain technology to build on. Ethereum is a network for transferring smart contracts that the industry is patiently waiting to launch after its public sale of ether (its dedicated cryptocurrency) in 2014. Ethereum was built as a Web 3.0 platform to allow multiple organizations to build side blockchains with their own cryptocurrency and feed back into the main Ethereum chain.

Blockchain is a database and software, “no more, no less,” said Preston Byrne, chief operating officer and general counsel at Eris Industries, during the Tomorrow’s Transactions Forum last week in London.

The blockchain-only approach will be more appealing to governments, banks, large corporations and every other company Bitcoin fanatics have been trying to sway into replacing legacy systems with cryptocurrency architecture.

"The automation of the industrial process is a primary driver of human progress; secure automation of data management is overdue," Byrne said.

And Dave Birch of Consult Hyperion, the strategic and technical consultancy that hosted last week's event, agreed that secure automation is necessary as the number of connected devices expands. This era of Internet-connected cars, refrigerators, doors, toothbrushes — nearly anything you can imagine — has been aptly named the Internet of Things (IoT).

But today, security in IoT is disastrous, Birch often says. He argues that blockchain technology could be the saving grace for authentication in IoT. For example, because a cryptocurrency token cannot be replicated, it could stand as an access token to a particular connected thing — like the keys to a connected car.

For the IoT to work, and the even more exciting decentralized autonomous corporations (DACs) to work — think a refrigerator ordering more milk for itself — a lot of interoperability is needed, said Vitalik Buterin, founder of Ethereum, during the forum.

Blockchain technology is perfect for “if then, then that” scenarios, Buterin said. For example, if the milk carton is connected and pings the fridge that it’s getting low, the fridge will then order more from the grocery store. And if the fridge orders more milk, it sends a notification to the owner’s mobile device to say a new milk carton is awaiting pickup.

Crypto or Cryptocurrerncy

The industry continues to throw its support behind blockchain technologies, deploying the technological advances but shunning the cryptocurrency which has suffered bad press from the shutdowns of Mt. Gox and Silk Road. But separating the value token from the rails on a public blockchain could pose a problem. To put resources (computing power and electricity) into the blockchain, the distributed network of miners will want a reward. In the example of Bitcoin (this simplifies it quite a bit), miners are motivated with bitcoin, the currency. Bitcoin hovers around $250 per coin. But for other blockchains, the data could act as the incentive or work could be regulated; these other methods have yet to be tested.

Or one could make the ledger private and take away the competitive mining, like Eris plans to do.

Eris’ idea for blockchain isn’t necessarily different than Satoshi Nakamoto’s, the pseudonymous creator of Bitcoin. It's an evolution of the technology, even complementary, illustrating the need for both public and private blockchains.

If governments or corporations are ever going to use blockchains, the process must have accountability, controllability, repeatability and reversibility, Byrne said. The system “must have someone that can change the program as things on the ground change,” he said.

Algorithms Can't be in Complete Control

The irreversibility of Bitcoin has been a selling point for retailers in that customers are unable to chargeback purchases. Especially as more commerce moves online, the instances of friendly fraud or chargebacks is increasing. And some of this fraud can be manipulative as consumers realize they can chargeback a purchase with their bank and also keep the merchandise usually without consequence.

But not every merchant is an altruistic actor either, which is why traditional payments companies muse offer a refund and chargeback policy. Requirements exist from the card schemes, banks and the CFPB. Also in online purchasing scenarios, consumers may never receive products, or they may get products that are nothing like what was advertised, and must have a method for getting recompensed.

Other situations arise in higher stakes environments that should also be given exception. For example, exceptions are given in OTC bilateral clearing to keep the system from a major meltdown. If a broker needs more collateral to pay the prime broker, he might start liquidating other positions or transferring funds so as not to be insufficient. If one of those transfers fails to execute, the broker is insufficient. But the broker “isn’t insolvent, just temporarily illiquid due to a clerical error,” said Izabella Kaminska, a blogger for FT Alphaville, who moderated a cryptocurrency panel at Tomorrow’s Transactions.

“As far as my prime broker is concerned it looks like I'm about to default — which could trigger a system panic,” she said. But it's in the counterparties' interest to offer the grace because if it’s known that the broker owing them collateral defaulted, it would also mean the counterparty doesn’t have the funds available to pay back their collateral, she said.

The bilateral structure of the current financial system is adaptive to these kinds of issues. But an inadaptable software algorithm would be unable to take those things into consideration, which is why a human control is in most cases not only desired but necessary.

Blockchain's Bigger Picture

Byrne tends to think the insatiable trumpeting of “put it on a blockchain” as a fix to all problems is nonsense. But he does suggest that there are aspects of the blockchain that will change the game, namely the ability to create interoperable data management software that can easily communicate with each other.

Although Byrne’s manipulable blockchain-as-a-service is likely a money-making model in an industry with a heavy reliance on open source, stripping the value token from the rail leaves merely an online accounting ledger. But blockchain as an accounting ledger has some benefits. Its access permission framework could allow a company to substantially lower the cost of managing data by decreasing the amount of oversight and supervision needed.

Some may see Eris as the money-hungry capitalist, centralizing a “humane” cryptocurrency platform for its own profit and the profit of the large corporations many would like to see disrupted. But that would be a shallow critique. Because the money Eris does make, by taking a service fee from clients that they help deploy blockchains, will ultimately be put back into the open source database architecture.

“We’re collecting a fee for service, not the IP (intellectual property),” said Byrne. “Our corporates learn how to use the technology and in turn we’re learning how to battle test it...how to better the underlying libraries and database.”

A bit of technical know-how is required to build upon this open source infrastructure without the help of experts like Byrne. But he has no illusion that the business model will become increasingly democratized. While there might be only about 40 good blockchain developers right now, Byrne expects there to be 400 in a year and then 4,000 a year later, increasing exponentially as the technology gains more interest and traction.

Plus while some people in the Bitcoin industry may resist centralization, Eris’ model might actually change the existing financial industry more so than the solely Bitcoin-based businesses have done to date.

“Many of the Bitcoin companies are starting to look like traditional financial services companies,” said Tom Robinson, co-founder and chief operating officer at Elliptic, a cold storage Bitcoin custodian, during the forum. Elliptic’s funds are also insured by an undisclosed U.K.-based insurance provider.

Bitcoin businesses are offering Web and mobile wallets, P2P, cross-border transfers at a fee and multi-signature security, all services banks and non-bank providers have been offering for decades.

“I wouldn’t be surprised if Coinbase or Circle [Internet Financial] got a banking license at some point,” Robinson said.

And then, is this Wild West of disruptors any different than the existing arrangement?

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