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In most situations trust between two parties can be obtained by means of a third party they both trust. That’s how the banking system has worked for centuries.

by zakk 8y ago

In most situations trust between two parties can be obtained by means of a third party they both trust. That’s how the banking system has worked for centuries. The use case for a blockchain is narrower: it can be used to establish trust between two parties in absence of a trustable third party.

olouv 8y ago
Exact, and we have seen how well this third-party trust system worked during the last financial crisis just a decade ago.
- paulgb 8y ago
  Which system failure from that crisis does blockchain technology fix?
  - olouv 8y ago
    Sudden cascading lack of trust?
    - paulgb 8y ago
      Blockchains can reduce counterparty risk in a transaction, but there's no technical solution to the fact that trust is required between, for example, a lender and a borrower. The idea that you can just sprinkle some blockchain dust and avoid financial crises is naive.
      - someguydave 8y ago
        >but there's no technical solution to the fact that trust is required between, for example, a lender and a borrower. No, it does not. However, if someone lends bitcoin to a borrower, it does not involve third parties, and therefore cannot "run" like a fractional reserve bank.
        0xCMP 8y ago
        Of course it could. How could anyone who cares to lend individuals or small companies have so much of their own money that they can just do that with their time? They start this thing called a "bank" or "investment group" or "hedge fund" (etc.) and they use other people's money to invest or provide credit and either return an agreed amount over time (interest) or whatever they manage to gain - a fee (ROI - management fees, which is usually % of $ under management or % of profits gained (more rare)). What you're suggesting is we get rid of credit and investing other people's money or, rather, that we use a system which makes that system impossible.
        AlexCoventry 8y ago
        Financial organizations will be able to provide zero-knowledge proofs of their aggregate resource commitments, including distributions of credit score attestations. Organizations can lend to each other on the basis of those.
        spookthesunset 8y ago
        > Financial organizations will be able to provide zero-knowledge proofs of their aggregate resource commitments, including distributions of credit score attestations. Organizations can lend to each other on the basis of those. This is pure meaningless buzzwords. Blockchain doesn’t solve any problem in the financial space besides providing a means to conduct financial fraud.
        Karrot_Kream 8y ago
        GP referenced technology, you said the technology was "buzzwords" and then insulted Blockchain with ad hominem. Grow up. Zero-knowledge proofs can be provided to show trustless distributions of data (credit score attestations for example, or resource commitments), and can definitely lead to things like the ability to share trustless commitments. FWIW, only ZCash really uses zero-knowledge proofs right now, and even then just for private transactions (a subset of all transactions made in ZCash). Maybe read a bit before attacking something?
    - jayd16 8y ago
      Not at all. Blockchains don't protect against poor investments or too much risk in any way. If we had a run on the banks you might have an argument but that didn't happen.
    - 0xCMP 8y ago
      The lack of trust stemmed from complex derivative contracts which allowed people to create bets on thing they did not own with massive upsides. The cascade was in the contracts creating disproportionate problems in the books of banks + the fact that the CDOs themselves were falling apart in value. Something like this could have easily* been created via ETH and automatically cascaded without and brakes and caused a chaotic meltdown that would be TRUELY destroyed the trust, not in ETH, but in the other people which we could lend money to and stop the growth of the economy which credit is built on. * in a world where we used ETH to make these contracts normally as we do today using English and our existing Property/Tax/etc. laws.
  - nivexous 8y ago
    Imagine you woke up one day to discover your bank account has been raided by another country's government. Just like that, $1 in every $16 of your supposedly safe money is gone. If you're wealthy enough to have more savings, it could be $1 in $10. Is it a nightmare? The terms of the Cypriot bailout (and bail-in) are as simple as they are startling. Germany will cough up about $13 billion, and, in exchange, Cyprus will levy a "one-time" tax on bank deposits to raise an additional $7.5 billion. This tax will take 6.75 percent from insured deposits of €100,000 ($129,000) or less, and 9.9 percent from uninsured amounts above €100,000. https://www.theatlantic.com/business/archive/2013/03/everything-you-need-to-know-about-the-cyprus-bank-disaster/274096/ https://www.theatlantic.com/business/archive/2013/03/everyth...
- zakk 8y ago
  The financial crisis didn’t start in the banking sector, it started in the finance sector. And I cannot really see how a blockchain could have prevented it... I would be interested in hearing ideas about this!
  - jsutton 8y ago
    When you have a public transparent record of the kinds of financial shenanigans that were going on, it can be audited very easily and put a stop to. The financial crisis was not avoided because all of the sketchy activity was hidden from sight.
- s17n 8y ago
  Some bitcoin advocates think that blockchain-based financial products will somehow provide credit while solving the problem of systemic risk, which doesn't seem possible to me. Others think that credit is just a scam and the main utility of banks is storing money and processing transactions, which is absurd. (In this scenario bitcoin takes over these functions and the financial system is no longer necessary.) Does your view fall into one of these categories?
  - maxnevermind 8y ago
    "Others think that credit is just a scam ... which is absurd" I understand that companies probably can't leave without it but I as an individual never took any loans in my entire life and not planning to get one. I don't like the idea and I see as it can get peoples life miserable, you constantly see people whining about paying the mortgage and credits even here because they basically chose, thanks to loans, the lifestyle they can't afford and because of how the whole thing works they can't easily get out of it.
- oh-kumudo 8y ago
  What evidence do you have that blockchain based technology will avoid the financial crisis to come? If anything, the blockchain advocates I have seen so far, are just as phony and greedy, if not more, as the bankers out there.
jayd16 8y ago
>The use case for a blockchain is narrower: it can be used to establish trust between two parties in absence of a trustable third party. It doesn't though. Now you're requiring a trusted (not a given) block chain that involves at least one third party but most likely many more at a high cost with more waste than traditional means.
- jsutton 8y ago
  It does, in these hypotheticals we assume a mature blockchain, and the 'third parties' in this case is the network itself. In non-PoW implementations, there is no more waste than traditional means.
icelancer 8y ago
>> third party they both trust Ah yes, it's turtles all the way down.
jsutton 8y ago
Third party trust has been the best solution in the past to establish trust. Blockchain tech has introduced a new solution that has been proven. As a business, if you have to choose between using a third party for trust or using a distributed trust-less system, and both are comparable in cost, what would you do?

by zakk 8y ago

olouv 8y ago

Exact, and we have seen how well this third-party trust system worked during the last financial crisis just a decade ago.

paulgb 8y ago
Which system failure from that crisis does blockchain technology fix?
- olouv 8y ago
  Sudden cascading lack of trust?
  - paulgb 8y ago
    Blockchains can reduce counterparty risk in a transaction, but there's no technical solution to the fact that trust is required between, for example, a lender and a borrower. The idea that you can just sprinkle some blockchain dust and avoid financial crises is naive.
    - someguydave 8y ago
      >but there's no technical solution to the fact that trust is required between, for example, a lender and a borrower. No, it does not. However, if someone lends bitcoin to a borrower, it does not involve third parties, and therefore cannot "run" like a fractional reserve bank.
      - 0xCMP 8y ago
        Of course it could. How could anyone who cares to lend individuals or small companies have so much of their own money that they can just do that with their time? They start this thing called a "bank" or "investment group" or "hedge fund" (etc.) and they use other people's money to invest or provide credit and either return an agreed amount over time (interest) or whatever they manage to gain - a fee (ROI - management fees, which is usually % of $ under management or % of profits gained (more rare)). What you're suggesting is we get rid of credit and investing other people's money or, rather, that we use a system which makes that system impossible.
        AlexCoventry 8y ago
        Financial organizations will be able to provide zero-knowledge proofs of their aggregate resource commitments, including distributions of credit score attestations. Organizations can lend to each other on the basis of those.
        spookthesunset 8y ago
        > Financial organizations will be able to provide zero-knowledge proofs of their aggregate resource commitments, including distributions of credit score attestations. Organizations can lend to each other on the basis of those. This is pure meaningless buzzwords. Blockchain doesn’t solve any problem in the financial space besides providing a means to conduct financial fraud.
        Karrot_Kream 8y ago
        GP referenced technology, you said the technology was "buzzwords" and then insulted Blockchain with ad hominem. Grow up. Zero-knowledge proofs can be provided to show trustless distributions of data (credit score attestations for example, or resource commitments), and can definitely lead to things like the ability to share trustless commitments. FWIW, only ZCash really uses zero-knowledge proofs right now, and even then just for private transactions (a subset of all transactions made in ZCash). Maybe read a bit before attacking something?
  - jayd16 8y ago
    Not at all. Blockchains don't protect against poor investments or too much risk in any way. If we had a run on the banks you might have an argument but that didn't happen.
  - 0xCMP 8y ago
    The lack of trust stemmed from complex derivative contracts which allowed people to create bets on thing they did not own with massive upsides. The cascade was in the contracts creating disproportionate problems in the books of banks + the fact that the CDOs themselves were falling apart in value. Something like this could have easily* been created via ETH and automatically cascaded without and brakes and caused a chaotic meltdown that would be TRUELY destroyed the trust, not in ETH, but in the other people which we could lend money to and stop the growth of the economy which credit is built on. * in a world where we used ETH to make these contracts normally as we do today using English and our existing Property/Tax/etc. laws.
- nivexous 8y ago
  Imagine you woke up one day to discover your bank account has been raided by another country's government. Just like that, $1 in every $16 of your supposedly safe money is gone. If you're wealthy enough to have more savings, it could be $1 in $10. Is it a nightmare? The terms of the Cypriot bailout (and bail-in) are as simple as they are startling. Germany will cough up about $13 billion, and, in exchange, Cyprus will levy a "one-time" tax on bank deposits to raise an additional $7.5 billion. This tax will take 6.75 percent from insured deposits of €100,000 ($129,000) or less, and 9.9 percent from uninsured amounts above €100,000. https://www.theatlantic.com/business/archive/2013/03/everything-you-need-to-know-about-the-cyprus-bank-disaster/274096/ https://www.theatlantic.com/business/archive/2013/03/everyth...
zakk 8y ago
The financial crisis didn’t start in the banking sector, it started in the finance sector. And I cannot really see how a blockchain could have prevented it... I would be interested in hearing ideas about this!
- jsutton 8y ago
  When you have a public transparent record of the kinds of financial shenanigans that were going on, it can be audited very easily and put a stop to. The financial crisis was not avoided because all of the sketchy activity was hidden from sight.
s17n 8y ago
Some bitcoin advocates think that blockchain-based financial products will somehow provide credit while solving the problem of systemic risk, which doesn't seem possible to me. Others think that credit is just a scam and the main utility of banks is storing money and processing transactions, which is absurd. (In this scenario bitcoin takes over these functions and the financial system is no longer necessary.) Does your view fall into one of these categories?
- maxnevermind 8y ago
  "Others think that credit is just a scam ... which is absurd" I understand that companies probably can't leave without it but I as an individual never took any loans in my entire life and not planning to get one. I don't like the idea and I see as it can get peoples life miserable, you constantly see people whining about paying the mortgage and credits even here because they basically chose, thanks to loans, the lifestyle they can't afford and because of how the whole thing works they can't easily get out of it.
oh-kumudo 8y ago
What evidence do you have that blockchain based technology will avoid the financial crisis to come? If anything, the blockchain advocates I have seen so far, are just as phony and greedy, if not more, as the bankers out there.

jayd16 8y ago

>The use case for a blockchain is narrower: it can be used to establish trust between two parties in absence of a trustable third party. It doesn't though. Now you're requiring a trusted (not a given) block chain that involves at least one third party but most likely many more at a high cost with more waste than traditional means.

jsutton 8y ago
It does, in these hypotheticals we assume a mature blockchain, and the 'third parties' in this case is the network itself. In non-PoW implementations, there is no more waste than traditional means.

icelancer 8y ago

>> third party they both trust Ah yes, it's turtles all the way down.

jsutton 8y ago

Third party trust has been the best solution in the past to establish trust. Blockchain tech has introduced a new solution that has been proven. As a business, if you have to choose between using a third party for trust or using a distributed trust-less system, and both are comparable in cost, what would you do?