Banks Are ‘Grabbing in the Dark’: Blockchain/Bitcoin VC Draper

Adam Draper thinks people will stop talking about the blockchain in the next few years.

No, the chief executive of Boost VC, which backs 56 bitcoin and blockchain companies, does not think the platform that promises to revolutionize financial institutions with rapid settlement and transparency is a fad. Rather, he thinks in a few years the technology will be so prevalent that it will fade into the background.

“In three years, no one is going to be saying blockchain, but everyone is going to be using the blockchain,” Draper said in a recent interview with American Banker. “I don’t say I’m going to TCP/IP you — I say I’m going to text you.”

Boost began four years ago as a venture firm with a tech-business development center. As it plotted its second year, it decided to narrow its focus. It considered 3-D printing, but that is too capital intensive, Draper says. It considered drones, but at the time Draper couldn’t see many uses besides taco delivery. Draper had already personally invested in Coinbase, a bitcoin exchange, so it decided to focus on the cryptocurrency. The company is now on its seventh “tribe” of companies put through its development program. It invests $25,000 for a 6% stake in the companies.

“We slowly became known as the bitcoin accelerator,” Draper said. “Our added value is that we’ve established the strongest network in the space, and so financial institutions come to talk to us about what they should do with blockchain. It’s fun.”

In the interview, Draper talked about the rise of blockchain technology, the future of bitcoin, the challenges of private blockchains and which sector is now catching his firm’s attention. The following is an edited transcript of that conversation.

Are you surprised that the technology has pulled ahead of the currency?

I look at it as a tree architecture. Blockchain is the industry and bitcoin is an opportunity in that industry. Underneath bitcoin, there are cross-border transactions, store of value for emerging markets and microtransactions. But blockchain itself has other opportunities; things like settlements and smart contracts.

I’m not surprised that blockchain has been noticed. Also, there is a lot of emotional baggage of bitcoin. Everyone realized it was valuable, but they couldn’t quite recognize that this thing associated with drugs and guns was going to be revolutionary to the financial markets. When people realized you could parse the two and didn’t need to be doing only currency-related transactions with the blockchain, its revolutionary power was noticed.

This is the year of blockchain experimentation. Every large financial institution is participating; they are all searching for the way it is going to disrupt financial markets. They are all experimenting with startups, experimenting internally. 2017 is implementation.

Are bitcoin companies finding it easier to find institutions that will offer them banking services?

It has gotten better. For our first bitcoin companies, banks had just begun hearing about bitcoin and thought it was bad, so all of them kept getting kicked out of banks. It is happening less and less now. A lot of banks have become more comfortable, but is are also a regulatory road map. Banks needed guidelines, and they have them now. They are treated like a money transmitter if they are transmitting money, for instance.

There was a period of time when all of the banks had an innovation department that was tasked with getting to the bottom of the technology, but they were also given no decision-making power to say if they could accept bitcoin accounts. All the banks were a “no” for about a year and a half. Our companies weren’t doing anything wrong and were going through [anti-money-laundering] and [know-your-customer] processes, but were kicked out of bank after bank after bank. But if bitcoin companies survived that period, they ended up having a bunch of great relationships with banks.

Banks are so gung ho about blockchain that it has led to more acceptance.

What’s your take on the plan to change the size of blocks in the bitcoin blockchain? Do you think there will be a hard fork (a change to the software that would require widespread adoption, or else possibly result in two competing networks)?

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