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It is outside the realm of possibility for bitcoin's blockchain to serve any useful purpose for the intermediaries it was designed to replace.
February 4 -
Supplanting a 50-year-old interbank network with the technology tied to bitcoin sounds provocative. Here's why it's not that crazy.
March 8 -
A concept that predated bitcoin itself is becoming more than a thought exercise as blockchains explore ways to harness smart contracts for greater uses.
January 8 -
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
Marc Andreessen, the venture capitalist and inventor of the early Web browser Mosaic, had it right when he tweeted in December: "Big companies desperately hoping for blockchain without Bitcoin is exactly like 1994: Can't we please have online without Internet?"
In the mid-'90s, the advent of the Web led to private companies attempting to create proprietary information-sharing networks (think AOL and CompuServe). But the Internet as we know it today won out over every single private network because it was not restricted to the big players and bogged down by proprietary protocols.
Banks are at risk of making the same mistake today as they show surprising interest in private distributed ledgers, or private blockchains, rather than put their intellectual capital to use on features that enhance the appeal of public blockchains and the virtual currencies – such as bitcoin – enabled by open-source ledger systems.
If the Internet and the Web have taught us anything, it is that groundbreaking technology is often built on top of open protocols in a level playing field where anyone can innovate regardless of size and influence. Companies like Google and Facebook are possible precisely due to the open nature of the Web.
There is no doubt that the use of private distributed ledgers can provide immediate improvements to some of the creaking infrastructure underlying the financial services industry, especially in the back office of securities settlement. But the financial industry's interest in building proprietary networks is, as Andreessen put it, like having "online without Internet."
To be sure, the transmission of bitcoin, which is the primary purpose today of the public blockchain, has several limitations today that limit its use. The number of transactions per block is limited, and the bitcoin community is currently engaged in a fierce and divisive battle about how to best address scalability concerns.
The limited
Meanwhile, the openness of a public blockchain naturally leads to concerns over whether private transactions can be carried out securely without the unwanted scrutiny of an open network. And public blockchains, in general, take significantly longer to confirm transactions than private networks.
But newer research suggests that bitcoin technology can be refined to overcome these limitations and reap the benefits of greater applicability. For example, developers are working on a cryptographic tool known as
Privacy of public blockchains will be further enhanced through the use of "zero-knowledge proofs," a method of verification that doesn't reveal any other information except the validity of the statement. Such projects include
Meanwhile, developers are attempting to address the scalability issues of bitcoin through so-called "
With these bitcoin-based development efforts, the public blockchain infrastructure will become more robust and scalable for global use. It won't happen overnight, but history suggests that open technology always wins over closed-garden approaches.
Siddharth Kalla is the chief technology officer of Acupay, a technology provider in New York specializing in cross-border finance. The views expressed are his own.
