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October saw the three main card networks invest in bitcoin-related companies, which comes on the heels of major banks exploring the use of bitcoin and blockchain technology to solve some industry pain points.
October 29 -
Theres no doubt that blockchain technology will facilitate disruptive innovations in finance, but a world of private ledgers sounds eerily similar to a range of private Internets.
October 28 -
The founder of an IPO services company that was sold this month to Nasdaq has lined up several investors for his new company, which will invest in bitcoin and blockchain developers.
October 28 -
Nasdaq has unveiled its blockchain technology initiative. The platform uses blockchain technology to issue shares for privately held companies on the Nasdaq Private Market and record their transfers. Clients receive a comprehensive record of issuance and transfer.
October 27 -
Furthering efforts to bring virtual currency mainstream, cryptocurrency companies and trade groups are teaming up to create a forum to aid law enforcement in weeding out criminal activity.
October 22 -
Santander Group, the Spanish banking giant, has invested several million dollars in Ripple, one of the most prominent startups in the hotly discussed field of distributed-ledger technology.
October 6
Over the past six months the fintech world and financial industry as a whole have gone agog with the term "blockchain." We can see that trend depicted via Google search results in the chart at right.
Why the sudden interest in "blockchains" and "distributed ledgers"? After all, much of the technology and ideas used by Bitcoin, Ethereum and even
While all the individual elements that comprise the Bitcoin blockchain have been around since 2001, it took until Satoshi's 2008 white paper to demonstrate how these individual pieces could be cobbled together to work as one to fulfill certain tasks. Specifically, the paper described a new type of data structure that was tamper-evident and economically costly for any one entity to unilaterally revise.
Careful study of cryptocurrency systems such as Bitcoin showed that under certain security assumptions, it is possible to verify and authenticate when financial information has been transferred and updated. Due to how it was configured, the specific applications of Bitcoin's blockchain itself resulted in a niche set of use cases, namely pseudonymous interactions that needed
What happens if you reconfigure those same elements or substitute those elements with other cogs and software
Some Bitcoin enthusiasts assert that non-Bitcoin blockchains are all the same and that "permissioned" blockchains – or blockchains that gate transaction validation – are not much different than
The problem with this broad generalization is that it does not distinguish between what each project, startup and effort in the overall space is trying to do. It lumps them all together without bothering to distinguish the potential customers and problem sets these projects are addressing.
For instance, most traditional financial institutions must comply with a variety of regulations that effectively rule out use cases that involve censorship resistance. In almost all cases, regulated entities must "know your validator." Therefore, since all transaction validators participants are known and legally accountable to off-chain third parties such as courts, the intensive proof-of-work mining process used by many public blockchains becomes unnecessary and wasteful.
But wasn't the sole value proposition of Bitcoin censorship resistance? If you remove that, shouldn't you just use an existing database for any and all interactions?
The problem is that while many financial institutions do share information with one another through a variety of
But what if institutions could use elements of a blockchain, such as public/private key cryptography to sign transactions and
But why not Bitcoin or Ethereum themselves? Why avoid public networks? Is it just that "a blockchain" – the brand itself – has a certain je ne sais quoi about it?
Many Bitcoin enthusiasts proclaim that since the Bitcoin network already exists today, there is little reason to go through the effort of reinventing the wheel. The reality is that the Bitcoin blockchain – which is just one of a few hundred blockchains – cannot currently provide a secure on-chain solution for the settlement of off-chain registered assets. Nor does it have the ability to quickly upgrade to provide such utility or
Remember, Bitcoin is just one "instrument." There are 45,000 companies listed on stock markets alone. There are 400,000 legal entities that have a "GlobalLegal Entity Identifier ." Reuters have a database of over 35 million instruments. Imagine what sort of blockchain would be needed to manage all this data and these participants.
The Bitcoin blockchain – which is just one of a
It is a truism to state that there are many different types of networks and data structures that provide different types of utility. There is a time, a place and a customer base for pseudonymous cryptocurrency systems. But for now, the global financial services markets demand far more than the Bitcoin blockchain can handle.
For the average reader of American Banker, those working for and representing globally regulated financial institutions, certain types of shared ledgers, with legally accountable validators and clear terms of service, could likely provide unique utility to your organizations. Whether the end product is called "a blockchain" or not is a
Tim Swanson is director of market research for R3CEV and is based in the San Francisco Bay Area. Follow him on Twitter