In a matter of months, this word, blockchain, has gone viral on trading floors and in the executive suites of banks and brokerages on both sides of the Atlantic. You can’t attend a finance conference these days without hearing it mentioned on a panel or at a reception or even in the loo. At a recent blockchain confab in London’s hip East End, the host asked if there were any bankers in the room. More than half the audience members, all dressed in suits, raised their hands. ... Now, everyone’s trying to figure out whether the blockchain is just so much hype or if Masters’s firm and other startups are really going to change the systems that process trillions of dollars in securities trades. When investors buy and sell syndicated loans or derivatives or move money around the world, they must cope with opaque and clunky back-office processes that rely on negotiated contracts between buyers and sellers, lots of phone calls, lots of lawyers, and even the occasional fax. It still takes almost 20 days, on average, to settle syndicated loan trades. ... A June report backed by Santander InnoVentures, the Spanish bank’s fintech investment fund, estimated the blockchain could save lenders up to $20 billion annually in settlement, regulatory, and cross-border payment costs. ... Venture capitalists plowed $400 million into dozens of digital currency startups in the first six months of this year, a fourfold jump from all of 2013, according to industry news site CoinDesk.
A year ago a hacker stole $55 million of a virtual currency known as ether. This is the story of the bold attempt to rewrite that history. ... Rather than moving bitcoin from one user to another, the ethereum blockchain hosts fully functioning computer programs called smart contracts—essentially agreements that enforce themselves by means of code rather than courts. That means they can automate the life cycle of bond payments, say, or ensure that pharmaceutical companies can authenticate the sources of their drugs. Yet smart contracts are also new and mostly untested. Like all software, they are only as reliable as their coding—and Gün was pretty sure he’d found a big problem. ... Gün feared the bug could allow a hacker to make unlimited ATM-like withdrawals from the millions, even if the attacker, who'd have needed to be an investor, had only $10 in his account. ... This staggering amount of money lived inside a program called a decentralized autonomous organization, or DAO. Dreamed up less than a year earlier and governed by a smart contract, the DAO was intended to democratize how ethereum projects are funded. Thousands of dreamers and schemers and developers who populate the cutting edge of computer science, most of them young, had invested in the DAO.