They call it the Hyperledger. And it can be yours.
In late December, several big-name companies from across both the tech and financial industries—including IBM, JP Morgan, Wells Fargo, and the London Stock Exchange—unveiled a new open source software project based on the blockchain, the global online ledger that underpins the bitcoin digital currency. The project aims to build blockchain-like software that can more efficiently, reliably, and openly track the exchange of financial assets, including stocks, bonds, futures, houses, and car titles. And considering the names involved—particularly the Depository Trust & Clearing Corporation, or DTCC, which oversees Wall Street’s stock settlement system—it’s an enormously significant undertaking.
Ideas can be very powerful. Once an idea gets out there—at least in today’s world—you’re not going to stop it from propagating. Arvind Krishna, IBM
Unlike the blockchain itself, the Hyperledger software isn’t battle-tested. In fact, it’s still being built. But on Tuesday, IBM unveiled a new cloud computing service that lets anyone kick the proverbial tires on this fledgling technology. “Anyone who signs up can use it,” says Arvind Krishna, the IBM Research director who is perhaps the man most responsible for the creation of the Hyperledger project, explains that although you’ll have to pay to spin up the software on a large number of IBM cloud machines, the service is free for use on a few computers.
Last year, researchers under Krishna began building an alternative to the blockchain. And after Krishna and others helped bootstrap the Hyperledger project—which operates under the aegis of the not-for-profit Linux Foundation—IBM donated its code to this open source effort. Others have donated additional code, but it appears that IBM’s contribution will serve as the foundation of the project.
With its new cloud service, IBM aims to give businesses and developers a means of testing and, eventually, deploying this blockchain-like software for real-world tasks. Using cryptographic algorithms running across a vast network of independent machines, the blockchain can potentially oversee the exchange of any digital asset. With bitcoin, the blockchain oversees the exchange of currency. But it could also bring a new level of efficiency and transparency to the stock market. That’s why the DTCC’s involvement is so important, since it provides the system that ultimately transfers stock ownership from one shareholder to another.
As with other blockchain advocates, IBM sees the open online ledger as a transparent way to track and trade ownership of houses, cars, and so many other assets. Microsoft is another tech giant that’s also getting behind the idea with its own cloud service based on the blockchain concept. In the fall, Microsoft unveiled a service that revolves around a blockchain alternative called Ethereum, and it plans on building a similar service using yet another alternative called Ripple. Microsoft claims that developers can start using the software in less than 20 minutes.
But these cloud services represent just a small part of the blockchain movement. Nasdaq OMX, the company that oversees the Nasdaq stock exchange, is building a private stock market service based on the blockchain, while online retailer Overstock.com has received SEC approval to offer public stock on the blockchain via a service it calls TØ. For Marley Gray, who oversees Microsoft’s blockchain work, this movement is a way to completely reinvent how financial markets operate. “[Bitcoin] proved that this thing works—that it scales, that it’s secure,” he says.
It’s true—so true that even the big Wall Street players are embracing this idea. But it’s an open question how far they’ll take the blockchain, considering that it could overturn their businesses. The DTCC drives stock settlement, for instance; if taken to its logical extreme, the blockchain could replace the DTCC. Plus, such organizations will be slowed by good old industry inertia. DTCC chief technical architect (Robert Palatnick calls the idea of the whole industry using a single system to oversee the stock market “aspirational.”)
But Krishna has no doubts that the financial industry will embrace this technology in big ways—it has no choice.
“Ideas can be very powerful. Once an idea gets out there—at least in today’s world—you’re not going to stop it from propagating,” he says. “Those that embrace it with speed and conviction will be better placed for whatever disruption follows—as opposed to being disrupted.”