You may have heard the general rumble of excitement concerning something called ‘ICE’ or ‘Bakkt’ lately. Words like ‘mainstream’, ‘adoption’, and companies like Starbucks and Microsoft are being mentioned too. Without getting too technical it’s time for a 101 on what all this noise about Bakkt is.
Who are ICE?
Intercontinental Exchange Inc. (ICE), are the owners of the New York Stock Exchange — a pretty big deal. On August 3rd, this year, they announced plans to launch a trading platform for digital assets including Bitcoin as well as implementing the trading of physical Bitcoin futures contracts
What is Bakkt?Bakkt is the name for that planned digital assets trading platform. ICE stated they would be building it atop Microsoft’s cloud technology — which is why they often are being mentioned.
When Bakkt?
There has been no absolute date announced by ICE, though many in the cryptocurrency community have bandied about the date of November 5th. It is important to know that whatever reasons people may have for insisting this is the possible date Bakkt will be delivered, nothing concrete has been confirmed by ICE as of this writing.
Why are People Talking about Starbucks?ICE announced that as well as being built on top of Microsoft cloud technology, they will also be working with Starbucks who will be able to accept Bitcoin at the point of sale and immediately exchange it for fiat. This means that Starbucks will still be balancing their books entirely in fiat, but the consumer will have to option to pay for products with Bitcoin.
How Will it Work?
As mentioned, Bakkt will be a number of things. Alongside its trading platform functionality — which is the most exciting news for crypto enthusiasts and those wanting mainstream adoption — Bakkt will also offer Bitcoin futures contracts. Which — for the average consumer like me — are a type of IOU contract where an asset is sold at an agreed price, and then delivered later.
The difference is that unlike some other giant financial institutions, Bakkt will trade actual bitcoins, not just speculate on the price. However, this comes with a pretty large caveat in the way in which they will handle investors assets.
“Our system would operate on a layer above the blockchain, and we would keep our own omnibus ledger apart from the blockchain.”
— Kelly Loeffler, CEO of Bakkt —
‘Omnibus ledger’ is a term used to describe an additional settlement layer which allows Bakkt to resolve accounts in ways behind the scenes from the investors portfolios of value. Many financial institutions do this but it also allows for is value settlement off the Bitcoin blockchain. This would technically allow for the moving of Bitcoin value, without actually being backed 1-1 with real world Bitcoin.
Is this a Good Thing?
Like the bitcoin ETF (check out our blog on that here) Bakkt is another example of large institutional companies being interested in utilising cryptocurrency. This obviously has positive implications for price movement and most people are keenly waiting for their crypto investments to go up in price.
However, because of the additional settlement layer, with the Bitcoin futures functionality Bakkt users will be effectively trading IOUs which risks artificial inflation. This is a similar problem the ETF will pose. It is important to remember that these ‘problems’ and risks are normal for traditional markets — some people argue they are necessary.
But the point of Bitcoin was to stand against traditional markets. Buying and selling of bitcoin off the Bitcoin blockchain opposes this philosophy and simply makes it another traditional commodity that can be mishandled and abused. I cannot help but feel that the approval of the mainstream that is supposed to come from big institutional players like ICE getting involved with Bitcoin, will eventually come about naturally when it becomes clear to people that trust, transparency and immutability are built in to cryptocurrencies from the start — they don’t need to be slapped on by large corporations promising they will handle it with care.
Written by : Glen Veitch