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BANKS DON’T NEED THEIR OWN ‘VANITY PROJECT’ BLOCKCHAINS

March 17, 2017 - Blockchain
BANKS DON’T NEED THEIR OWN ‘VANITY PROJECT’ BLOCKCHAINS

 

Over 50 of the world’s biggest banks are currently studying one of Bitcoin’s key components – the Blockchain. But it’s becoming increasingly evident that the idea of banks building their own blockchains is like the futile attempt of building your own internet. 

[Note: This is an Op-Ed]


‘CAN’T WE BE IN THE HEADLINES ON BLOCKCHAIN?’

When a bank says they’re working on their own blockchain platform are they actually saying “let’s build our own internet?” And do they use the terms Blockchain and Distributed Ledger indistinguishably?

Definitions matter. They matter a lot. Particularly when it comes to bleeding edge tech were semantics could be the difference between an innovative edge and losing millions. 

First, the two terms are not interchangeable. A distributed ledger is essentially a shared ledger or database that doesn’t need a Blockchain, nor a cryptocurrency token, nor a consensus algorithm.

R3’s Corda platform, for example, has been criticized recently by many in the Bitcoin community because the it wasn’t too explicit on whether it was working on a blockchain or distributed ledger platform.

It seems Bloomberg didn’t get the memo that @R3CEV “have never been a blockchain company” ?https://www.bloomberg.com/news/videos/2017-01-09/quicktake-bitcoin-and-the-blockchain 
ping @derosetech

Photo published for QuickTake: Bitcoin and the Blockchain

QuickTake: Bitcoin and the Blockchain

On today’s “QuickTake” topic, Vonnie Quinn reports on Bitcoin and how banks are using the cryptocurrency’s blockchain technology to track money transfers and other transactions. She speaks on…

bloomberg.com

Blockchains, on the other hand, are “a public ledger of all Bitcoin transactions that have ever been executed” by definition. What’s more, this chain constantly grows as completed (i.e. verified) blocks are added to it via a consensus algorithm with a new set of recorded transactions in a linear, chronological order. Hence the term block-chain.

martha-bennett

But amid the current hype of ‘chainwashing,’ Blockchain has “almost taken on a life of its own” among corporate executives, where it is becoming “a bit like a CEO vanity project,” Martha Bennett, principal analyst at Forrester, told AmericanBanker.

What are we doing on blockchain? Can’t we be in the headlines on blockchain?

This is akin to every bank racing to develop their “own version of the Windows operating system,” she adds. Would anything work if every bank or business attempted to build their own platforms instead of building on top of the most widely-accepted one? The answer is a resounding no as this would not only result in fragmentation but also create ‘islands’ of technological stagnation.

“The competitive differentiation is in the applications you build on top,” Bennett notes.

SCALING BLOCKCHAINS TO THE MAINSTREAM

One of the key challenges for Blockchain to overcome is scaling – an issue that Bitcoin itself is currently trying to cope with.

Establishing a platform among a few client banks with various permissions is relatively easy since trust is not a major factor among only a handful of counterparties. But as network effect moves past Dunbar’s number and beyond, scaling becomes hard.

Bitcoin mining profitability

For example, Northern Trust and IBM have recently launched what they call the first commercially deployed blockchain-based solution for finance. However, the platform runs on just four nodes with an opaque consensus mechanism, which can’t be considered a “full-fledged” blockchain network, according to Bennett.

“It’s comparatively easy to get something working between two or three parties because then it’s easy to agree,” she continues. “What we still don’t have is anything that scales and more importantly, anything where you can be sure other companies will accept the same processes or data standards.”

So could so-called “private blockchains” become a thing for banks?

Barclays

Perhaps, but a term such as Distributed Ledger would probably be more accurate at this point. Whereas Blockchain should be seen more like a public utility providing a ledger that is visible to all. Such transparency is incompatible with traditional banking, an industry that’s built on trust, client relationships, and centralized storage of personal data (a model that’s becoming increasingly insecure and a honeypot for cybercriminals).

Bennett explains:

If you want scale, confidentiality, control, authentication, permissioning, etc., you’re already talking about governance mechanisms where only the counterparties see the details of a transaction, something blockchain architecture doesn’t support.

That’s not to say that banks will never be able to find a legitimate use-case for blockchain technology in the future. However, current attempts appear to be nothing more than chainwashed “vanity projects” driven more by the desire to be in the headlines rather than an actual attempt at “disruption from the inside-out.”   

In other words, study it, develop it, test it — but don’t call it a blockchain just yet.

Images courtesy of Shutterstock, Twitter, Forrester.com

Sursa: bitcoinist.com