[Note: opinions expressed below are solely my own and do not represent the views of my employer or any company I advise.]
Earlier this week a piece appeared on Yahoo with a number of quotes from individuals who are trying to create a new narrative for why “Blockchain” is the cool kid at school right now.
“I can see why banks are interested in using permissioned ledgers, and maybe it will make their back office more efficient,” says Jerry Brito, executive director of digital currency nonprofit Coin Center. “But at the end of the day, it’s not a very exciting innovation. The real innovation is a completely open and global ledger that is permission-less. Having a closed, permissioned ledger run by banks, that might allow for better auditing, but there’s no innovation there, you still have to go through a consortium to use the ledger.” That is, what banks seem to want to do is incongruous to the purpose of the blockchain.
The claim in here is false. In fact, this line of reasoning is literally the No True Scotsman fallacy (or in this case, no true ledger fallacy).
There is a lot of real innovation going on behind the scenes (and a lot of non-innovation going on too) by several dozen companies building new types of applications that couldn’t really work on public blockchains (due to the lack of definitive legal settlement finality, governance, scalability and capacity — among other reasons).
Innovation and ideation are occurring, it just isn’t happening with Bitcoin or with some Bitcoin companies beyond trying to ignore state, federal and international laws (slightly kidding).
Furthermore, not all ledgers are alike. To claim that technology is “incongruous” because it isn’t fixed to the original project is a non sequitur.
Bitcoin visualized how and what one application of distributed ledger technology could look like. It showed, much like the Wright Flyer and the Benz Patent Motor Car previously did, how cobbling together existing pieces could provide a new form of utility. But for something important like regulated capital markets you wouldn’t continue reusing experimental tech just because it already exists. That’s a sunk cost fallacy.
But Brito also believes the interest will subside once banks actually learn more about blockchain technology. “I think right now investors are kind of waiting for Wall Street to get through this blockchain phase,” he says. “They have blockchain fever and they need to just get over it. Because if they develop their own closed blockchains, soon they’ll all realize they want to talk to each other, and they’ll be back to square one, doing banking.”
This is also untrue. There have been between 150-200 pilots and proof-of-concepts for banks that utilize some type of cryptocurrency (or fork thereof), nearly all of which have been rejected. Not because the banks are “anti-bitcoin” or “don’t get the blockchain” but because Bitcoin doesn’t solve the actual problems banks actually have — it wasn’t designed to.
Furthermore, as I have repeatedly explained — as early as September — in both public and private venues that:
1) the ledger/network/fabric will be open sourced
2) that recreating lots of silos probably isn’t very productive
There has been a lot of backlash from some members of the cryptocurrency because their bet hasn’t paid off but it’s disingenuous to create a narrative that is factually untrue.
I certainly cannot speak on behalf of banks, but if the goal is to get banks and other financial institutions to actually use a product then the product needs to actually provide a solution for them; cryptocurrencies as they currently exist weren’t built with their needs or requirements in mind, so why would they use them?