Learning more about blockchain
Well done to my old chum Chris Skinner for setting up the Financial Services Club debate around the blockchain this week.
Chris wrote this up on his blog, so there’s no need for me to write it all up again here! I just wanted to draw out a specific point about the use of the bitcoin blockchain as a value transfer system (which was the heart of what had started the debate in the first place) and the different between talking about the blockchain, a blockchain and a replicated distributed shared ledger.
The debate was about whether blockchain is faster and cheaper, and it was clear from the start that this was going to be difficult as the question Dave raised is: faster and cheaper than what?
Well, indeed. The blockchain is only one architectural choice for a replicated distributed shared ledger and the bitcoin “proof of work” version is only one architectural choice for a blockchain. Making any sweeping statements about blockchains is ridiculous.
Anyway, my point was that blockchains are at best an unproven route to a faster or cheaper mechanism for value transfer. Since most of the costs of value transfer are compliance and customer service and other non-technological stuff, it might be better to focus on the characteristics of shared ledgers that tackle those costs. In his speech to the London School of Economics on 2nd March, Ben Broadbent (Deputy Governor for Monetary Policy at the Bank of England) said that “in the opinion of most economists, it’s pretty unlikely that [bitcoin’s] use as a means of exchange will become very widespread” and I agree. Bitcoin may well have a very interesting future, but not as a mass-market value transfer mechanism.
In this light, bitcoin is now perhaps best considered not just as an investment vehicle or currency, but as the longest-running proof of concept for how blockchain-based systems, those that both use its tech and innovate on its concepts, may improve finance.
But, as noted, there are other kinds of shared ledgers. Jon said that shared ledgers were not new, but I disagreed. The point about the replicated distributed shared ledger as an architecture is that it is made possible by Moore’s Law. We have never before been at a point where all of us can store everything. This new technology must be a new platform for new services that I’m not smart enough to think of, but I’m unconvinced that sending money for one person to another more cheaply or more quickly than the Faster Payment Service (FPS) is one of them. On the other hand, emergent properties around transparency and robustness and integrity and “smart contracts” might lead to wholly new and wholly better financial markets.
We had a robust but gentlemanly debate and I sincerely hope that the audience enjoyed it as much as we did!