7 ms·

Big Banks Are All Over Blockchain

62 points by olivermarks 9y ago

tzakrajs 9y ago
I love this mass delusion that banks in the US have been seeking a technological solution for speeding up interbank transfers when the issue is bureaucratic.
- indemnity 9y ago
  Interbank transfers in my country take about 2 hours during business hours. No sexy blockchain.
astrodust 9y ago
Gasoline on the fire. What could possibly go wrong?
viraptor 9y ago
It's an interesting article, finally listing some specific use cases. But I'm curious - why now? What makes blockchain better than using other possibilities between each pair of banks? I don't expect bank A to care about transactions between banks B and C, so the distributed blockchain doesn't sound very useful. On the other hand, I expect banks to care about guaranteed atomic transactions rather than consensus. (Transfers between many banks in the UK were instantaneous for a decade or so, so apparently it can be done without a blockchain ;-) )
- bradleyjg 9y ago
  I don't expect bank A to care about transactions between banks B and C, so the distributed blockchain doesn't sound very useful. Maybe for more efficient netting? If A owes B $100 and B owes C $100 and C owes A $100 then no money has to ever change hands, even in the sense of crediting or debiting accounts at the central bank.
- Analemma_ 9y ago
  I wonder how many of these banks think they're using blockchain, and put out press releases stating that, because the engineers have lied to management in order to get projects underway. Matt Levine has been speculating on this a lot recently: banks traditionally have hugely underinvested in infrastructure upgrades. I imagine if you're in IT at a bank, it must be awfully tempting to go "blockchain! secret project!" to get management on board because the suits are all caught up in the hype. Then you can just immediately pivot to Apache Cassandra (which is strictly superior to blockchain in pretty much every proposed business use of blockchain I've ever seen) and no one's the wiser.
  - vladsanchez 9y ago
    Would you please share references to your stated Cassandra superiority over Blockchain? Thanks.
    - canoebuilder 9y ago
      Cassandra is real world proven tech with many actual, observable implementations "in the wild." What even is a "blockchain," not in the context of something like bitcoin? How does a blockchain even work within a single organization? However it may or may not work, the dynamics involved would seem to make it qualitatively different from something like a bitcoin blockchain. So you're asking for a comparison between something that does exist and something that doesn't. And in fact something that can never exist, if we are going to stick to the convention of treating names as more or less unique identifiers of a certain set of characteristics.
    - code_sloth 9y ago
      Try querying a blockchain.
      - jameskegel 9y ago
        Block explorers work great. Is that what you mean?
  - tCfD 9y ago
- shepardrtc 9y ago
  Each bank/financial institution will probably have its own blockchain for its own purposes. But if they need to make a transaction to another bank's blockchain, they can use the Interledger protocol [1] to do so. [1] https://interledger.org/ https://interledger.org/
  - viraptor 9y ago
    Here's the point though: if you want to do this, why not have a standard relational database at each bank and a standard for authorised endpoints in each paired bank? This tech was available for decades. Why interledger and blockchains to complicate it?
    - DennisP 9y ago
      You wouldn't. You use a blockchain when you want one common ledger across multiple companies, and you don't want to pay/trust a single company to manage it. Assuming you know who everyone is, you can use traditional consensus mechanisms like Byzantine Paxos and get much higher transaction rates than public blockchains can do right now.
      - canoebuilder 9y ago
        With bitcoin, because the participants aren't identified and there isn't any form of traditional trust established between them, there are certain actors in the system that are paid a lot to manage the transactions/blockchain. In your example of multiple companies coordinating on a single blockchain, who would be paid to manage it?
        DennisP 9y ago
        It's way cheaper than on Bitcoin because there's no PoW. Each participant would pay to run their own servers that connect to it.
      - ucaetano 9y ago
        You use a blockchain when you want one common ledger across multiple companies, and you don't want to pay/trust a single company to manage it. Not really, you can have a blockchain managed by a single company. In the most basic definition, a blockchain is simple an authenticated linked sequence of records. It can be public or not, it can be processed centrally, distributed across a single organization, or distributed in a peer-to-peer fashion.
- ucaetano 9y ago
  All the transaction stuff is useless. Blockchain is actually really bad for that: it utilizes a centralized ledger. Money today is completely decentralized. There is no central registry of where every single piece of money is, which has to be updated every time anyone makes a transaction. It flows and is converted to goods and vice versa in a completely decentralized and parallel way. Remember: the ledger is completely centralized (there is a single, unique, monolithic ledger). Only processing of the ledger is distributed. It is probably the worst possible way to design a currency.
  - flignats 9y ago
    This is untrue, where did you learn this?
    - ucaetano 9y ago
      What is untrue? That bitcoin has a single central ledger? Duh, it does. If the ledger is processed in a distributed way across many peers doesn't change the fact that there is a single central ledger. If a transaction isn't in the ledger, it doesn't exist. If I give you $10 and we don't tell anyone about it, do you still have the money? Yes. If I give you BTC10 and we don't tell anyone about it, do you still have the BTC? No.
      - jameskegel 9y ago
        If I give you a paper wallet or something like openDime? You now have BTC and nobody knows about it.
        viraptor 9y ago
        If you give someone a paper wallet, then both of you have access to it and both of you know about it. (You can't prove you don't have a copy) If you do it on opendime, then everyone with access to opendime know about it. (Potentially - depends how much you trust opendime)
- amarkov 9y ago
  When two banks transfer money, there's no concrete thing being moved or transmitted. It pretty much just involves bank B telling bank A "You hereby have $100k of my cash". So A needs some kind of global ledger to keep track of how much cash B actually has, and double check whether it's already told C, D, E that they have all of it. There's no reason in principle a blockchain is better at solving this problem than a trusted central bank. But if the existing central bank is moving slowly or has annoying policies, it's much easier to bootstrap a blockchain than bootstrap a new trusted authority.
  - gaius 9y ago
    So A needs some kind of global ledger to keep track of how much cash B actually has, and double check whether it's already told C, D, E that they have all of it. https://en.m.wikipedia.org/wiki/Nostro_and_vostro_accounts https://en.m.wikipedia.org/wiki/Nostro_and_vostro_accounts This is a long solved problem. No blockchains necessary. As an aside this is a problem I often see in fintech pitches...
  - ucaetano 9y ago
    "When two banks transfer money, there's no concrete thing being moved or transmitted. It pretty much just involves bank B telling bank A "You hereby have $100k of my cash". So A needs some kind of global ledger to keep track of how much cash B actually has, and double check whether it's already told C, D, E that they have all of it." No, there's no global ledger, and it isn't required. There are checks and balances and regulations that allow money to work in a completely distributed way. Unlike cryptocurrencies that use a centralized ledger (all the 'major' ones, at least).
shepardrtc 9y ago
Ripple can connect all the banks, blockchains, and currencies together.
ucaetano 9y ago
On the contrary. They’re pouring money into developing their own “digital currencies,” as they call them. Just don’t call them “cryptocurrencies.” Blockchain is to (some) cryptocurrencies as security paper is to paper money. Nobody calls your Passport "paper money", even if it is made of security paper just like your $10 bill. Settlements could be executed almost instantaneously on a bank-by-bank basis rather than having to be netted at the end of each working day by the respective central bank Guess the author isn't aware about how bank transfers happen around the world. Many places aren't locked in banking pre-history like the US. EU, Brazil, India, all have "almost instantaneously on a bank-by-bank basis" transfers. But perhaps the biggest area of interest for commercial banks is in the field of customer and counterparty identification and verification. This is where blockchain actually matters. All the currency stuff is BS.
thisisit 9y ago
It's basically this kind of confused, bullshit reporting which gives false hope to the FOMO crowd or draws ire from bitcoin naysayers. One, the confusing narrative around blockchain. Settlements don't require any kind of "proof of work" mechanism. It's basically a shared ledger where only permissioned parties can access/write. Some are calling it "Distributed Ledger". Surely, someone is going to point out that "proof of work" is not the definition/requirement for blockchain. But, using it interchangeably and confusing the bank "blockchain" with the cryptocurrencies "blockchain" is causing the confusion and euphoria. Second, settlements don't even need "coins". Cryptocurrencies use "coins" as an incentive mechanism. In PoW, you earn coins for securing the network. In PoS, you stake your coins to secure the network and earn fees. But, if you have a permissioned, private blockchain there is no need of "coins" because there is no incentive structure. Will DBS earn extra coins for each transaction in the blockchain because of staking or something? If not, then these "coins" are just numbers to enumerate position sizes. In which case, why even call them "coins" and not "settlement amount in x currency"?
- tCfD 9y ago
  Another phrase, perhaps along the lines of "probability of bet" would be a much better term than "proof of work" given that the reason the energetic commitment of work matters at all is that it represents a finite unit of value that someone, somewhere, allocated to a given blockchain in the form of risk. The amount of underlying value at risk is actually unknown because nobody knows what the cost basis was of the electricity used to "purchase" it. But using proof of work to describe the mechanism of committing a bet to a blockchain is rather like calling the ante in a card game "proof of chip toss". It's technically correct but it describes a relatively incidental aspect of the incentive construction process.
- JumpCrisscross 9y ago
  > some are calling it "Distributed Ledger" Friend runs settlement infrastructure for a large bank. It's not sexy work. He has to fight for his budget. His TL; DR with a lot of this is it has made getting necessary infrastructure upgrade approvals easier. Been needing to unify wire confirmations with some esoteric trade settlement system? Talk about Ripple. Adding real-time functionality to a net settlement system? It's a "distributed ledger". Boss gets a press release and maybe a glowing write-up, IT gets its kit.
module0000 9y ago
Dear author.. "blockchain"... you keep using that word, I do not think it means what you think it means.
down 9y ago
they are just trying to make it like blockchain is not a big deal, hey we all have blockchain, saw it in an interview too.
hanklazard 9y ago
Exactly. This is the point I make when people start talking about how Ripple coin is going to revolutionize banking. Blockchain will definitely be useful for banking, but i’ve been able to come up with no reason to involve a cryptocurrency. Edit: iPhone thumbs
- sanmon3186 9y ago
  Ripple coin can [potentially] provide single currency for banks operating across the globe, if it is able to get wider acceptance and ensure low volatility. I too have my doubts but this[1] post explains it well. [1] https://medium.com/@AlexCarrithers/xrp-vs-ious-on-ripple-what-are-they-and-which-are-banks-using-257023fc578e https://medium.com/@AlexCarrithers/xrp-vs-ious-on-ripple-wha...
  - aiCeivi9 9y ago
    Except it doesn't give a single reason for banks to use ripple ( or any other crypto) at all.
deleted 9y ago
[deleted]
nikolay 9y ago
PSA: Any piece of news having "blockchain" in its title is bearish toward "Bitcoin".
NicoJuicy 9y ago
Ugh, I know a guy who thinks Bitcoin > blockchain. Although he is very smart, I really don't understand his reasoning
arnon 9y ago
I've been talking to some banking innovators, and they're not really sure what it is they're doing with Blockchain. There's promise in the concept, but not in the current iteration. It's not suited for actual banking requirements at this time. Perhaps the successor will see actual adoption, and not purely marketing-jargon adoption.

62 points by olivermarks 9y ago

I love this mass delusion that banks in the US have been seeking a technological solution for speeding up interbank transfers when the issue is bureaucratic.

indemnity 9y ago
Interbank transfers in my country take about 2 hours during business hours. No sexy blockchain.

astrodust 9y ago

Gasoline on the fire. What could possibly go wrong?

viraptor 9y ago

It's an interesting article, finally listing some specific use cases. But I'm curious - why now? What makes blockchain better than using other possibilities between each pair of banks? I don't expect bank A to care about transactions between banks B and C, so the distributed blockchain doesn't sound very useful. On the other hand, I expect banks to care about guaranteed atomic transactions rather than consensus. (Transfers between many banks in the UK were instantaneous for a decade or so, so apparently it can be done without a blockchain ;-) )

bradleyjg 9y ago
I don't expect bank A to care about transactions between banks B and C, so the distributed blockchain doesn't sound very useful. Maybe for more efficient netting? If A owes B $100 and B owes C $100 and C owes A $100 then no money has to ever change hands, even in the sense of crediting or debiting accounts at the central bank.
Analemma_ 9y ago
I wonder how many of these banks think they're using blockchain, and put out press releases stating that, because the engineers have lied to management in order to get projects underway. Matt Levine has been speculating on this a lot recently: banks traditionally have hugely underinvested in infrastructure upgrades. I imagine if you're in IT at a bank, it must be awfully tempting to go "blockchain! secret project!" to get management on board because the suits are all caught up in the hype. Then you can just immediately pivot to Apache Cassandra (which is strictly superior to blockchain in pretty much every proposed business use of blockchain I've ever seen) and no one's the wiser.
- vladsanchez 9y ago
  Would you please share references to your stated Cassandra superiority over Blockchain? Thanks.
  - canoebuilder 9y ago
    Cassandra is real world proven tech with many actual, observable implementations "in the wild." What even is a "blockchain," not in the context of something like bitcoin? How does a blockchain even work within a single organization? However it may or may not work, the dynamics involved would seem to make it qualitatively different from something like a bitcoin blockchain. So you're asking for a comparison between something that does exist and something that doesn't. And in fact something that can never exist, if we are going to stick to the convention of treating names as more or less unique identifiers of a certain set of characteristics.
  - code_sloth 9y ago
    Try querying a blockchain.
    - jameskegel 9y ago
      Block explorers work great. Is that what you mean?
- tCfD 9y ago
shepardrtc 9y ago
Each bank/financial institution will probably have its own blockchain for its own purposes. But if they need to make a transaction to another bank's blockchain, they can use the Interledger protocol [1] to do so. [1] https://interledger.org/ https://interledger.org/
- viraptor 9y ago
  Here's the point though: if you want to do this, why not have a standard relational database at each bank and a standard for authorised endpoints in each paired bank? This tech was available for decades. Why interledger and blockchains to complicate it?
  - DennisP 9y ago
    You wouldn't. You use a blockchain when you want one common ledger across multiple companies, and you don't want to pay/trust a single company to manage it. Assuming you know who everyone is, you can use traditional consensus mechanisms like Byzantine Paxos and get much higher transaction rates than public blockchains can do right now.
    - canoebuilder 9y ago
      With bitcoin, because the participants aren't identified and there isn't any form of traditional trust established between them, there are certain actors in the system that are paid a lot to manage the transactions/blockchain. In your example of multiple companies coordinating on a single blockchain, who would be paid to manage it?
      - DennisP 9y ago
        It's way cheaper than on Bitcoin because there's no PoW. Each participant would pay to run their own servers that connect to it.
    - ucaetano 9y ago
      You use a blockchain when you want one common ledger across multiple companies, and you don't want to pay/trust a single company to manage it. Not really, you can have a blockchain managed by a single company. In the most basic definition, a blockchain is simple an authenticated linked sequence of records. It can be public or not, it can be processed centrally, distributed across a single organization, or distributed in a peer-to-peer fashion.
ucaetano 9y ago
All the transaction stuff is useless. Blockchain is actually really bad for that: it utilizes a centralized ledger. Money today is completely decentralized. There is no central registry of where every single piece of money is, which has to be updated every time anyone makes a transaction. It flows and is converted to goods and vice versa in a completely decentralized and parallel way. Remember: the ledger is completely centralized (there is a single, unique, monolithic ledger). Only processing of the ledger is distributed. It is probably the worst possible way to design a currency.
- flignats 9y ago
  This is untrue, where did you learn this?
  - ucaetano 9y ago
    What is untrue? That bitcoin has a single central ledger? Duh, it does. If the ledger is processed in a distributed way across many peers doesn't change the fact that there is a single central ledger. If a transaction isn't in the ledger, it doesn't exist. If I give you $10 and we don't tell anyone about it, do you still have the money? Yes. If I give you BTC10 and we don't tell anyone about it, do you still have the BTC? No.
    - jameskegel 9y ago
      If I give you a paper wallet or something like openDime? You now have BTC and nobody knows about it.
      - viraptor 9y ago
        If you give someone a paper wallet, then both of you have access to it and both of you know about it. (You can't prove you don't have a copy) If you do it on opendime, then everyone with access to opendime know about it. (Potentially - depends how much you trust opendime)
amarkov 9y ago
When two banks transfer money, there's no concrete thing being moved or transmitted. It pretty much just involves bank B telling bank A "You hereby have $100k of my cash". So A needs some kind of global ledger to keep track of how much cash B actually has, and double check whether it's already told C, D, E that they have all of it. There's no reason in principle a blockchain is better at solving this problem than a trusted central bank. But if the existing central bank is moving slowly or has annoying policies, it's much easier to bootstrap a blockchain than bootstrap a new trusted authority.
- gaius 9y ago
  So A needs some kind of global ledger to keep track of how much cash B actually has, and double check whether it's already told C, D, E that they have all of it. https://en.m.wikipedia.org/wiki/Nostro_and_vostro_accounts https://en.m.wikipedia.org/wiki/Nostro_and_vostro_accounts This is a long solved problem. No blockchains necessary. As an aside this is a problem I often see in fintech pitches...
- ucaetano 9y ago
  "When two banks transfer money, there's no concrete thing being moved or transmitted. It pretty much just involves bank B telling bank A "You hereby have $100k of my cash". So A needs some kind of global ledger to keep track of how much cash B actually has, and double check whether it's already told C, D, E that they have all of it." No, there's no global ledger, and it isn't required. There are checks and balances and regulations that allow money to work in a completely distributed way. Unlike cryptocurrencies that use a centralized ledger (all the 'major' ones, at least).

shepardrtc 9y ago

Ripple can connect all the banks, blockchains, and currencies together.

ucaetano 9y ago

On the contrary. They’re pouring money into developing their own “digital currencies,” as they call them. Just don’t call them “cryptocurrencies.” Blockchain is to (some) cryptocurrencies as security paper is to paper money. Nobody calls your Passport "paper money", even if it is made of security paper just like your $10 bill. Settlements could be executed almost instantaneously on a bank-by-bank basis rather than having to be netted at the end of each working day by the respective central bank Guess the author isn't aware about how bank transfers happen around the world. Many places aren't locked in banking pre-history like the US. EU, Brazil, India, all have "almost instantaneously on a bank-by-bank basis" transfers. But perhaps the biggest area of interest for commercial banks is in the field of customer and counterparty identification and verification. This is where blockchain actually matters. All the currency stuff is BS.

thisisit 9y ago

It's basically this kind of confused, bullshit reporting which gives false hope to the FOMO crowd or draws ire from bitcoin naysayers. One, the confusing narrative around blockchain. Settlements don't require any kind of "proof of work" mechanism. It's basically a shared ledger where only permissioned parties can access/write. Some are calling it "Distributed Ledger". Surely, someone is going to point out that "proof of work" is not the definition/requirement for blockchain. But, using it interchangeably and confusing the bank "blockchain" with the cryptocurrencies "blockchain" is causing the confusion and euphoria. Second, settlements don't even need "coins". Cryptocurrencies use "coins" as an incentive mechanism. In PoW, you earn coins for securing the network. In PoS, you stake your coins to secure the network and earn fees. But, if you have a permissioned, private blockchain there is no need of "coins" because there is no incentive structure. Will DBS earn extra coins for each transaction in the blockchain because of staking or something? If not, then these "coins" are just numbers to enumerate position sizes. In which case, why even call them "coins" and not "settlement amount in x currency"?

tCfD 9y ago
Another phrase, perhaps along the lines of "probability of bet" would be a much better term than "proof of work" given that the reason the energetic commitment of work matters at all is that it represents a finite unit of value that someone, somewhere, allocated to a given blockchain in the form of risk. The amount of underlying value at risk is actually unknown because nobody knows what the cost basis was of the electricity used to "purchase" it. But using proof of work to describe the mechanism of committing a bet to a blockchain is rather like calling the ante in a card game "proof of chip toss". It's technically correct but it describes a relatively incidental aspect of the incentive construction process.
JumpCrisscross 9y ago
> some are calling it "Distributed Ledger" Friend runs settlement infrastructure for a large bank. It's not sexy work. He has to fight for his budget. His TL; DR with a lot of this is it has made getting necessary infrastructure upgrade approvals easier. Been needing to unify wire confirmations with some esoteric trade settlement system? Talk about Ripple. Adding real-time functionality to a net settlement system? It's a "distributed ledger". Boss gets a press release and maybe a glowing write-up, IT gets its kit.

module0000 9y ago

Dear author.. "blockchain"... you keep using that word, I do not think it means what you think it means.

down 9y ago

they are just trying to make it like blockchain is not a big deal, hey we all have blockchain, saw it in an interview too.

hanklazard 9y ago

Exactly. This is the point I make when people start talking about how Ripple coin is going to revolutionize banking. Blockchain will definitely be useful for banking, but i’ve been able to come up with no reason to involve a cryptocurrency. Edit: iPhone thumbs

sanmon3186 9y ago
Ripple coin can [potentially] provide single currency for banks operating across the globe, if it is able to get wider acceptance and ensure low volatility. I too have my doubts but this[1] post explains it well. [1] https://medium.com/@AlexCarrithers/xrp-vs-ious-on-ripple-what-are-they-and-which-are-banks-using-257023fc578e https://medium.com/@AlexCarrithers/xrp-vs-ious-on-ripple-wha...
- aiCeivi9 9y ago
  Except it doesn't give a single reason for banks to use ripple ( or any other crypto) at all.

deleted 9y ago

[deleted]

nikolay 9y ago

PSA: Any piece of news having "blockchain" in its title is bearish toward "Bitcoin".

NicoJuicy 9y ago

Ugh, I know a guy who thinks Bitcoin > blockchain. Although he is very smart, I really don't understand his reasoning

arnon 9y ago

I've been talking to some banking innovators, and they're not really sure what it is they're doing with Blockchain. There's promise in the concept, but not in the current iteration. It's not suited for actual banking requirements at this time. Perhaps the successor will see actual adoption, and not purely marketing-jargon adoption.