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> Because private blockchains are a solution to a network problem Would someone mind explaining more specifically how private blockchains do anything that a tr

> Because private blockchains are a solution to a network problem Would someone mind explaining more specifically how private blockchains do anything that a traditional shared database or network doesn't already do? Without the incentives, distributed computing power, and public participation in a blockchain like Bitcoin, what does a private blockchain actually do? If it's "private", does that imply that, like Ethereum, the blockchain could be forked at any time by those who claim ownership of it? Doesn't that essentially undermine the validity of many of the selling points associated with blockchain technology? I've heard cases made about things like smart contracts, cryptographic authentication, and other "exciting applications", but I don't understand how these are any more effective in the context of a private blockchain than they would be directly relying on certain cryptographic primitives and traditional networks - especially in the absence of a public, globally distributed network with incentives that are aligned with improving the strength of the blockchain itself.

patrickk 10y ago
>Without the incentives, distributed computing power, and public participation in a blockchain like Bitcoin, what does a private blockchain actually do? Proof of Work, public networks make most sense for low trust scenarios where you wish to move actual money with people you don't know or trust at all. There are other scenarios however. A few examples: Scenario 1: Large Banks eliminating middlemen and making settlement for more cost effective Quoting from another comment I made: > It takes some financial assets 3-5 days to settle after the initial transaction goes through, weaving its way through many database systems (some many decades old) and middlemen who each take a cut, e.g. clearing houses. Any established industry has lots of cruft that builds up. > For this reason Santander estimates that banks can save $15-20bn per year collectively by using blockchain technologies to make their infrastructure more efficient[1][2] [1] http://www.coindesk.com/santander-blockchain-tech-can-save-banks-20-billion-a-year/ http://www.coindesk.com/santander-blockchain-tech-can-save-b... [2] http://santanderinnoventures.com/fintech2/ http://santanderinnoventures.com/fintech2/ From another comment: > Since with a private banking settlement blockchain you know in advance who the players are (individually-invited banks) you can give them a percentage of the network and have each node verify the transactions across the network. You could even give nodes to regulators or consumer advocacy groups to achieve regulatory compliance or consumer oversight if required. > As for cost, you could technically run a PoS node with a raspberry pi, a large USB drive, a wifi connection, powered by a solar panel and an old car battery on the roof of a building. Proof of stake only needs minimal computing power and a persistent internet connection. Saving billions in costs at a time when banks are struggling to increase revenues is a powerful incentive to consider blockchains. You don't need a public blockchain because you know in advance who the players are. Scenario 2: Streamlining KYC data, therefore improving data quality and massively reducing costs I sat at a presentation where a startup outlined a product roadmap being offered to large financial institutions such as banks or insurance companies. A big problem is KYC data gathering- often the customer data goes stale, therefore data quality is poor, and it's expensive, costing about €200 per account to process. In the proposed product, a private blockchain is implemented to gather and manage customer data, hosted collectively by the institutions that are interested in cost savings and efficiency improvements. The customer decides when, with who and how their data is managed - a big improvement over today. If you update your address for Bank A - then your insurance company, your second bank, etc all get your updated, verified address. If your car insurance is a 12 month contract, you can terminate access to your personal data after the contract is up. If you decide to get car insurance with a second company, you grant permission to that company, who then doesn't need to see any form of ID because your identity is cryptographically verified (technically they don't even need to know your name!) The cost to gain access to the customer data is borne by the company getting access, a fee which they're happy to pay because it's vastly cheaper to pay that rather than gathering and securing customer data themselves, paying a company to verify your ID, and so on. These are the early days of blockchain technology. There's lots of potential advantages of a distributed database over a SQL database, and we're only starting to figure out what those are, and what scenarios where is doesn't make sense.
- Lazare 10y ago
  > It takes some financial assets 3-5 days to settle after the initial transaction goes through, weaving its way through many database systems (some many decades old) and middlemen who each take a cut, e.g. clearing houses. Any established industry has lots of cruft that builds up. Yes, but centralized databases are a solved problem. It doesn't take 3-5 days for Amazon to process an order, or for github to process a pull request. The problem is here: > weaving its way through many database systems (some many decades old) Right, so you could replace the entire thing with a single centralized database, and cut the processing time to ~0. And you wouldn't need to develop any new technology to do it. > For this reason Santander estimates that banks can save $15-20bn per year collectively by using blockchain technologies to make their infrastructure more efficient Assuming that is correct, that implies you could save even more money by using existing database technology. Right? What I'm looking for isn't an argument about why banks need to update their technology (they do), or why the existing system is almost unbelievably archaic and inefficient (it is). What I'd like to know is why blockchains are the correct upgrade path when they appear to be strictly inferior to other existing technologies along the dimensions that banks are currently struggling with. Of all the places blockchains make sense, an industry with universally used, completely trusted, and heavily regulated central clearing houses seems like the worst possible case. No? True, the KYC makes slightly more sense. Even there I have to wonder though. If I was hired as the CTO for an industry consortium to design a secure way of allowing customers to store, manage, and share their PII, I can see a lot of potential problems, but none of them feel like something a blockchain would help solve. Or to put it another way: How come Amazon never talks about using private blockchains to manage inventory or payments to their sellers? Wouldn't all the arguments in favor of blockchains among banks apply even more strongly to using them within Amazon?
  - patrickk 10y ago
    > Yes, but centralized databases are a solved problem. It doesn't take 3-5 days for Amazon to process an order, or for github to process a pull request. The problem is here: With the current state of the art[1], it takes several days to settle a transaction. In 2016, this is really not ideal. > Right, so you could replace the entire thing with a single centralized database, and cut the processing time to ~0. And you wouldn't need to develop any new technology to do it. I could think of several problems, mainly around trust. Who hosts it? How is access managed? A regular SQL database makes sense if it's within a single institution, because presumably you trust your own employees to enter trade data with the best of intentions, but this trust isn't there for external parties. It's not the storage which is the issue, it's the verification. If you are (made up example) JP Morgan, and you've sold $500m in bonds to a mutual fund, both parties know for sure that everything went smoothly if their copy of the blockchain tells them that it went ahead (just like you know that your Bitcoin wallet contains x bitcoin, and if you send that balance to an address, that transaction is absolutely confirmed beyond doubt). The transaction and settlement happen at the same time, instead of a 3 day process which is the situation today (for stocks). They don't need an expensive, external authority to tell them that everything went smoothly, they can confirm it themselves much faster and cost effectively. Here's a presentation by UBS, exploring possible use cases for what they call "smart bonds": https://www.youtube.com/watch?v=jgJxEHwj-XU https://www.youtube.com/watch?v=jgJxEHwj-XU (around 4:00 he speaks about the benefits of smart bonds) > Of all the places blockchains make sense, an industry with universally used, completely trusted, and heavily regulated central clearing houses seems like the worst possible case. No? I could be wrong, but I think what's being proposed with these private blockchains is that the central clearing houses' role would be reduced to being an arbitrator in the case of disputes between industry players, e.g. in a proof of stake network, the own enough % to confirm a transaction or roll it back (maybe their role is even eliminated entirely). Whether or not this actually happens will depend on legislation of course, not technology. > Or to put it another way: How come Amazon never talks about using private blockchains to manage inventory or payments to their sellers? Wouldn't all the arguments in favor of blockchains among banks apply even more strongly to using them within Amazon? Probably because Amazon is a hugely powerful entity, and it's sellers have no power to demand equal access to a shared database. All (most of?) the large, important transactions happen on an Amazon database, which isn't the case in the financial sector. Plus Amazon is a growing business, whereas in investment banking growing revenue is a huge struggle post-2008 with newer regulations so there is a rush to cut costs and inefficiencies. Disclaimer: I'm not an expert, this is based on what others have told me, and research papers I've read. [1] http://www.investopedia.com/terms/s/settlement_period.asp http://www.investopedia.com/terms/s/settlement_period.asp

patrickk 10y ago

>Without the incentives, distributed computing power, and public participation in a blockchain like Bitcoin, what does a private blockchain actually do? Proof of Work, public networks make most sense for low trust scenarios where you wish to move actual money with people you don't know or trust at all. There are other scenarios however. A few examples: Scenario 1: Large Banks eliminating middlemen and making settlement for more cost effective Quoting from another comment I made: > It takes some financial assets 3-5 days to settle after the initial transaction goes through, weaving its way through many database systems (some many decades old) and middlemen who each take a cut, e.g. clearing houses. Any established industry has lots of cruft that builds up. > For this reason Santander estimates that banks can save $15-20bn per year collectively by using blockchain technologies to make their infrastructure more efficient[1][2] [1] http://www.coindesk.com/santander-blockchain-tech-can-save-banks-20-billion-a-year/ http://www.coindesk.com/santander-blockchain-tech-can-save-b... [2] http://santanderinnoventures.com/fintech2/ http://santanderinnoventures.com/fintech2/ From another comment: > Since with a private banking settlement blockchain you know in advance who the players are (individually-invited banks) you can give them a percentage of the network and have each node verify the transactions across the network. You could even give nodes to regulators or consumer advocacy groups to achieve regulatory compliance or consumer oversight if required. > As for cost, you could technically run a PoS node with a raspberry pi, a large USB drive, a wifi connection, powered by a solar panel and an old car battery on the roof of a building. Proof of stake only needs minimal computing power and a persistent internet connection. Saving billions in costs at a time when banks are struggling to increase revenues is a powerful incentive to consider blockchains. You don't need a public blockchain because you know in advance who the players are. Scenario 2: Streamlining KYC data, therefore improving data quality and massively reducing costs I sat at a presentation where a startup outlined a product roadmap being offered to large financial institutions such as banks or insurance companies. A big problem is KYC data gathering- often the customer data goes stale, therefore data quality is poor, and it's expensive, costing about €200 per account to process. In the proposed product, a private blockchain is implemented to gather and manage customer data, hosted collectively by the institutions that are interested in cost savings and efficiency improvements. The customer decides when, with who and how their data is managed - a big improvement over today. If you update your address for Bank A - then your insurance company, your second bank, etc all get your updated, verified address. If your car insurance is a 12 month contract, you can terminate access to your personal data after the contract is up. If you decide to get car insurance with a second company, you grant permission to that company, who then doesn't need to see any form of ID because your identity is cryptographically verified (technically they don't even need to know your name!) The cost to gain access to the customer data is borne by the company getting access, a fee which they're happy to pay because it's vastly cheaper to pay that rather than gathering and securing customer data themselves, paying a company to verify your ID, and so on. These are the early days of blockchain technology. There's lots of potential advantages of a distributed database over a SQL database, and we're only starting to figure out what those are, and what scenarios where is doesn't make sense.

Lazare 10y ago
> It takes some financial assets 3-5 days to settle after the initial transaction goes through, weaving its way through many database systems (some many decades old) and middlemen who each take a cut, e.g. clearing houses. Any established industry has lots of cruft that builds up. Yes, but centralized databases are a solved problem. It doesn't take 3-5 days for Amazon to process an order, or for github to process a pull request. The problem is here: > weaving its way through many database systems (some many decades old) Right, so you could replace the entire thing with a single centralized database, and cut the processing time to ~0. And you wouldn't need to develop any new technology to do it. > For this reason Santander estimates that banks can save $15-20bn per year collectively by using blockchain technologies to make their infrastructure more efficient Assuming that is correct, that implies you could save even more money by using existing database technology. Right? What I'm looking for isn't an argument about why banks need to update their technology (they do), or why the existing system is almost unbelievably archaic and inefficient (it is). What I'd like to know is why blockchains are the correct upgrade path when they appear to be strictly inferior to other existing technologies along the dimensions that banks are currently struggling with. Of all the places blockchains make sense, an industry with universally used, completely trusted, and heavily regulated central clearing houses seems like the worst possible case. No? True, the KYC makes slightly more sense. Even there I have to wonder though. If I was hired as the CTO for an industry consortium to design a secure way of allowing customers to store, manage, and share their PII, I can see a lot of potential problems, but none of them feel like something a blockchain would help solve. Or to put it another way: How come Amazon never talks about using private blockchains to manage inventory or payments to their sellers? Wouldn't all the arguments in favor of blockchains among banks apply even more strongly to using them within Amazon?
- patrickk 10y ago
  > Yes, but centralized databases are a solved problem. It doesn't take 3-5 days for Amazon to process an order, or for github to process a pull request. The problem is here: With the current state of the art[1], it takes several days to settle a transaction. In 2016, this is really not ideal. > Right, so you could replace the entire thing with a single centralized database, and cut the processing time to ~0. And you wouldn't need to develop any new technology to do it. I could think of several problems, mainly around trust. Who hosts it? How is access managed? A regular SQL database makes sense if it's within a single institution, because presumably you trust your own employees to enter trade data with the best of intentions, but this trust isn't there for external parties. It's not the storage which is the issue, it's the verification. If you are (made up example) JP Morgan, and you've sold $500m in bonds to a mutual fund, both parties know for sure that everything went smoothly if their copy of the blockchain tells them that it went ahead (just like you know that your Bitcoin wallet contains x bitcoin, and if you send that balance to an address, that transaction is absolutely confirmed beyond doubt). The transaction and settlement happen at the same time, instead of a 3 day process which is the situation today (for stocks). They don't need an expensive, external authority to tell them that everything went smoothly, they can confirm it themselves much faster and cost effectively. Here's a presentation by UBS, exploring possible use cases for what they call "smart bonds": https://www.youtube.com/watch?v=jgJxEHwj-XU https://www.youtube.com/watch?v=jgJxEHwj-XU (around 4:00 he speaks about the benefits of smart bonds) > Of all the places blockchains make sense, an industry with universally used, completely trusted, and heavily regulated central clearing houses seems like the worst possible case. No? I could be wrong, but I think what's being proposed with these private blockchains is that the central clearing houses' role would be reduced to being an arbitrator in the case of disputes between industry players, e.g. in a proof of stake network, the own enough % to confirm a transaction or roll it back (maybe their role is even eliminated entirely). Whether or not this actually happens will depend on legislation of course, not technology. > Or to put it another way: How come Amazon never talks about using private blockchains to manage inventory or payments to their sellers? Wouldn't all the arguments in favor of blockchains among banks apply even more strongly to using them within Amazon? Probably because Amazon is a hugely powerful entity, and it's sellers have no power to demand equal access to a shared database. All (most of?) the large, important transactions happen on an Amazon database, which isn't the case in the financial sector. Plus Amazon is a growing business, whereas in investment banking growing revenue is a huge struggle post-2008 with newer regulations so there is a rush to cut costs and inefficiencies. Disclaimer: I'm not an expert, this is based on what others have told me, and research papers I've read. [1] http://www.investopedia.com/terms/s/settlement_period.asp http://www.investopedia.com/terms/s/settlement_period.asp