Blockchain – A revolutionary new way of managing online money, or a complete irrelevance?
A Blockchain is a distributed ledger technology where every trusted source has a copy of the ledger and can add to it. There is no master copy. Each block contains a timestamp, a link to a previous block and is encrypted with such strong cryptography that it is considered virtually immune from tampering and revision.
Blockchain was the main technical innovation of bitcoin. It is now finding adherents in the real world, with real, or should we say more conventional money.
We are told that Blockchain is some sort of panacea for all the ills of the finance industry – but it’s difficult to determine exactly what the problem is they are trying to solve. Blockchain is technology and can solve technical problems. But what is the problem that this technology will solve?
The banks can transfer money from one place to another for pennies and convert currencies essentially freely. The technology they use is neither expensive nor advanced. So that’s not the problem.
Democratisation then. Is that the problem?
“The fees charged by the banks are extortionate and competition will resolve it”.
Well, yes. Maybe. But you don’t need to invent a whole new technology to do that. The Trusek Connections platform can do that job using much more straightforward technology. Even more important it can be integrated into the current infrastructure and will reduce the costs to something most users would consider a rounding error.
So, again the question: what is the problem that needs to be solved? Ownership?
“The banks own the ledgers. The Blockchain is owned by no one.”
Really? What happens when something goes wrong? When it’s your money, you want someone who is responsible, not just for making sure that it doesn’t go wrong in the first place, but also for fixing it afterwards. (Things will go wrong, however clever, distributed and democratic it is. Everything does.)
But let’s assume that you have this new, foolproof financial backbone based on the Blockchain. To be any use, you need to be able to go shopping with it, pull it out of an ATM as cash, pay using direct debits and standing orders and use all of the other bank owned infrastructure. What’s in it for the banks? Why would they complete their bit?
Unless it’s integrated into the financial infrastructure it will remain forever niche.
OK, so let’s assume that there are answers to all of the points raised above, and the banks are on board, and we now have a wonderful new Blockchain based financial backbone for the whole world. What’s changed? What has been created is fundamentally another payment type, another deposit type, perhaps a new currency. In the best of all possible worlds a Blockchain is just a ledger with some permissible transaction types. It doesn’t have any sort of user interface, it doesn’t have any sort of reporting, it may or may not have some sort of permission system. It might have some ability to manage anti-money laundering (until someone works out a way round it). It probably won’t pay interest on funds held and it surely won’t lend to anyone.
In any financial system the ledger is one table out of hundreds. A small piece of the puzzle.
Whatever it can or can’t do, it certainly won’t happen overnight, and in reality, there will still be gate-keepers. There may be a few more of them and they may have to be a bit more circumspect than the banks were with their charging – but user charges will still exist.
And then of course, there is the cost of making the system work.
So: revolution or irrelevance? Neither. It’s some very cool tech that may make coding some things a bit easier in the future. I’m not sure that it will rock our world however.