The enjoyable and illuminating blockchain argument that was ranging across my Twitter feed last night has set me thinking again (the hallmark of a good argument). As many people have noted, there are really two Bitcoin communities at large: there are the the people who want Bitcoin the currency to replace fiat currencies the world over and there are the people who want bitcoin the technology to replace legacy infrastructure in financial services.
This doesn’t have to be a zero-sum game, but increasingly it looks as though the two visions of bitcoin are in conflict.
Chief amongst the latter are the people who think that some form of private blockchain is more likely to be adopted by the financial services industry. I think it is fair to say that amongst the people in charge of such things at banks, this is a common meme. When I read various reports about banks being interested in _the_ blockchain, I mentally translate the statement as banks being interested in _a_ blockchain. This is what I think bank people mean by “bitcoin technology”.
Mr. Englander [Citigroup currency strategist] outlined three risks facing Bitcoin right now… “Competition emerges from conventional financial institutions using generic bitcoin technology, without the decentralization and within the conventional regulatory framework”.
This suggests to me that the paths are actually decoupled. In other words, the future of Bitcoin is unrelated to the use of shared ledgers by financial institutions (so, for example, Nasdaq coloured coins have no future) and the future of the blockchain in financial institutions is unrelated to Bitcoin. I realise this is not an original thought: Richard Brown of IBM UK for one observed that the blockchain revolution is so fascinating because it could actually be TWO completely different revolutions, both profound in their implications:
Censorship-resistant digital cash providing a new platform for open, permissionless innovation driven from the margins
And industry-level systems of record driving efficiencies for incumbents.
Neither of these are “sure things”… they are both high risk speculative bets… but they’re also very DIFFERENT bets…
I agree. They are very different bets. And as Simon Taylor of Barclays has frequently observed, this leads to business and technology people talking past each other rather than communicating to exploit exciting opportunities. Gideon Greenspan puts it like this:
Crypto-heads laugh at token-free blockchains because they can’t provide censorship resistance and decentralized security through proof-of-work. Fintech-heads laugh at public blockchains because they are slow, expensive and unsuitable for traditional finance. Well, keep laughing everybody, because I believe you are both right
I am not saying that permissionless blockchains have no future (although I am very sceptical about their future for currency creation) but I am saying that they are not what the financial services industry wants. Now, whether the financial services industry actually wants a blockchain _at all_ is an argument for another day, but right now I feel it is useful to repeat Bob Hettinga’s 2002 comment about a shift to a new kind of financial services industry based on transparency “not because someone or other wants to strike a blow against the empire, but simply because it’s safer — and cheaper — to do that way”. Quite.