Blockchain systems have been inching their way towards the mainstream for years, hampered by a squalid reputation as a haven for criminal activity and wildly volatile asset prices.
But, despite many setbacks, the technology has fought its way into public awareness and, while the #disruption it promises to wreak on traditional financial systems is yet to materialise, it is becoming ever more established, slowly encroaching on the fringes of traditional bank business.
An Australian company has sold what it is calling the first “bitcoin to stock” convertible loan. DigitalX, which makes "blockchain enhanced payment solutions", raised A$300,000 ($239,000), loaned to it for 12 months by Blockchain Global (BGL) at a rather punchy 12% interest. The investor will exercise its option and convert the investment into shares, subject to approval from the other shareholders.
The loan also includes a promise that BGL will “subscribe for, or procure subscribers for” up to a further A$4.05m in shares, options, and similar convertible notes.
It’s something of a niche transaction, filling DigitalX’s urgent need for funding following its acquisition of an energy company, the founder of which was indicted for fraud.
But even here, a corporate advisory firm was able to pocket 6% in fees for arranging it.
The fact that this transaction was conducted on the blockchain and in bitcoin has very little impact on the deal itself. It could just as easily have taken place in more traditional ways. While the funds exchanged were in Bitcoin, all the figures were worked out in Australian dollars, since the wild swings in Bitcoin’s value make it an uneasy fit for such deals.
The parties involved do make great play of the fact that it was “near instant” (after a nearly two month due diligence process).
But transactions on the blockchain are gathering momentum. The State of Delaware signed a bill last week allowing companies to list stock on blockchains, allowing issuance and transactions to take place there, although the SEC made it clear last week that simply being on a blockchain does not free participants from any obligations.
But the truth is that the players in blockchain are far from ready for the vanilla world of capital markets’ flow. This was demonstrated on Tuesday when Bitcoin, the oldest decentralised currency, faced a hard fork.
For those uninitiated in crypto-terminology, a hard fork occurs when some Bitcoin developers decide to make changes to the software but others wish to maintain the status quo.
Tuesday’s hard fork hinged on an increase in the size of blocks (components of the Bitcoin blockchain), intended to reduce transaction times and fees. However, the update will also involve updating a component called SegWit to SegWit2x and abandoning the original, which has attracted the ire of other developers.
Bitcoin holders will find themselves with Bitcoin Cash, but some exchanges are likely to resist, causing a split in the market.
This is not the first fork that Bitcoin has faced, as the abandoned carcasses of Bitcoin XT, Bitcoin Classic and Bitcoin Unlimited attest and, given the fact that the cryptocurrency remains under the diffuse control of several independent development teams, it is unlikely to be the last.
Blockchain and the world of cryptocurrencies may yet have much to offer mainstream capital markets in terms of efficiency savings and alternative methods of financing. While the sector remains plagued by the uncertainty of hard forks and the continued potential for vast regulatory upheaval, it will not emerge from the fringes.