The blockchain hype is high. Marketers will tell you it’s disruptive technology that will revolutionise the banking industry. It will change how people think about money in their daily life and everyone will want it. This is pure scaremongering for an industry which thrives when there is stability or even staleness.
Banks are frantically asking for blockchain solutions
So, while it’s not a surprise bankers don’t like new disruptive technology (see the PSD2 case) they have to somehow cope with it. This often translates to trying to acquire as much internal competence as possible not to drown in change. Of course they try and ride the change instead. For this reason most banks and other industries who initially tried to stay as far as possible from Bitcoin and blockchains, are now asking for blockchain solutions, sometimes spending beefy cut of their budgets in R&D in this innovative field.
When formulating requests to research teams however, much is lost in translation because of the friction with a paradigm that is arguably the exact opposite of a bank: the complete decentralisation of money. It’s very clear that we are just at the dawn of this blockchain era. There is a lot of information that still have to reach high execs by capillary action.
Real advantages vs. perceived hype
There are certainly a lot of advantages for banks to run a blockchain: speed up clearance, complete traceability of internal assets, mathematical auditability, enhanced security and the list goes on. Crucially all these advantages work only when you peek into the very core of banking; and we will get there only when we reach a critical mass of adoption. To complicate the matter, we have a set of competing consortia trying to set different standards (Corda, Hyperledger, Enterprise Ethereum…)
I would argue that all these energies would be better spent working to something which could be even better than a blockchain. It would be a win-win because bank won’t be stuck with burning money in a technology originally conceived to kill them. Moreover they would have something really fit to the properties they are looking in a distributed ledger.
Nano-blockchains could save banks
While many solutions would work better than a blockchain for a bank, one I liked is the Swarm coin protocol. I think it’s interesting because, it still delivers the whole package of the aforementioned good properties.
This is technically not a blockchain, because the block is the single transaction inside it. At most it is a nano-blockchain. The core principle is to leave out things that are not necessary for monetary transaction like the total ordering. In layman terms if Alice has 5€, writes an I.O.U for 5€ to Bob and then another for 5€ to Carl, there is something wrong. Carl would want to check in the ledger if the 5€ are already assigned to someone else before. On the other hand, Zeno which lives in Australia, doesn’t care so much about the ordering of these transactions. Zeno only cares about Xantippe who just gave him 5AUD, did he gave the same 5AUD to someone else before?
The whole point here is that the total ordering is a very strong property of blockchains that’s not vital in real distributed transactions. Even in real ledgers we mostly care about local, causal and partial ordering. Swarm coin builds upon this fundamental property. While I don’t write this to endorse Swarm coin, I think is a good specimen of what it’s achievable if bankers let the blockchain hype for a second. If they concentrate on their more immediate problems and how new technologies could solve them they may gain even more.
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