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I thought the blockchain technology had the potential to help financial sector. Not the virtual currency itself but there are a lot of agreements, transactions

by vinni2 8y ago

I thought the blockchain technology had the potential to help financial sector. Not the virtual currency itself but there are a lot of agreements, transactions and settlements which are done in a untrustworthy environment which makes it slow and resulting in settlements [0]. I thought this is also the reason why it takes so long to transfer money from one bank to another. I thought these processes could benefit from blockchains and smart contracts. Basically speeding up the whole process not requiring the banks to trust anyone [1]. [0] https://en.m.wikipedia.org/wiki/Payment_system https://en.m.wikipedia.org/wiki/Payment_system [1] http://cjel.law.columbia.edu/preliminary-reference/2016/developing-blockchain-real-time-clearing-and-settlement-in-the-eu-u-s-and-globally-2/ http://cjel.law.columbia.edu/preliminary-reference/2016/deve...

speedplane 8y ago
The simple feature of reducing settlements from days into seconds is by itself a great use-case. However, there is a lot of structural incentives against it. If you're a big bank and make nice transaction fees because your clients trust you to make a secure, legal, and successful transaction, you probably don't want blockchain, because it's a threat to your business model. That's certainly one of the major reasons it's taking so long to be accepted by mainstream banks. But long term, banks will need to accept faster transaction times. Blockchain or not, it's ridiculous you need to wait days to transfer money when you can send email in milliseconds. Rather than accept Bitcoin, it's far more likely big-banks will get together and form their own crypto coin, which will enable faster transfers, but keep them in control. They'll get regulations passed that will make Bitcoin and most other crypto currencies illegal or legally risky, whereas their system will be blessed by regulators. Under this scenario (I think the likeliest), the existing power hegemony stays this same, crypto-currency's idealistic roots become viewed as naive and antiquated, and consumers get slightly faster transfers through their same old banks with marginally lower transaction fees.
- vkou 8y ago
  > The simple feature of reducing settlements from days into seconds is by itself a great use-case. The reasons for why settlements take days, and not seconds, is procedural, not technical. If the financial world wanted instant settlements, we would have had them decades ago. The financial world optimizes for intent and compliance, not speed. This is why settlements take days, and why cryptocoins aren't very interesting to it. Transferring money from one account to another account is as simple as updating two rows in a database. That the database is not a distributed proof-of-work ledger has nothing to do with it taking days.
  - jmknoll 8y ago
    Can you expand on this a little more? Why does the financial sector want settlements to take longer?
    - handsomechad 8y ago
      presumably for time to detect and prevent fraud or illegal transactions.
    - tialaramex 8y ago
      Invariably for some fraction of transactions you'll later find out the settlement shouldn't have been executed. It doesn't matter whose "fault" that is, either way somebody will get screwed when this happens. If you wait longer, you may detect this before settlement completes and nobody gets screwed. In my country there's a scam where people find out you're buying a house through a particular solicitor with a large cash transfer, then they send you an email or even a physical letter saying there's a problem, the solicitor just found out their firm got a new bank, or whatever, please transfer the house money to the new account. Of course it's a lot of money so most people will want to check this is right - they provide their phone number on the message. This number, of course, is part of the scam and a "secretary" will answer saying your solicitor is busy right now, but yes, they're very sorry, the message is genuine and please use the new account details. The large sums involved mean this scam is very lucrative even if it doesn't work on say, 99% of potential victims. If the victim realises they've been scammed ten minutes after the transfer, chances are good the bank can fix it, because settlements aren't really instant. If they realise the next day, or two, or three days later, the money is gone. It went to a mule, who has already forwarded it, the police might arrest the mule if they can find them, but the mule doesn't have your money, they're just another sucker.
    - piva00 8y ago
      Risk aversion (against fraud, criminal activities, etc.) and also because a bank earns money as long as it can hold that money, every day that money is accruing interests so if you can hold on that money for longer it makes you more money without any downsides.
- zaarn 8y ago
  >But long term, banks will need to accept faster transaction times. Blockchain or not, it's ridiculous you need to wait days to transfer money when you can send email in milliseconds. Already happening. SEPA Instant is either being released or in trial phases. My bank is trialing it, a <10 second transaction costs 1€ fee flat, normal SEPA is still free. And banks offer me more in terms of personal security. If I lose my debit card, I get all damages reimbursed. If the bank gets hacked, there is insurance. Unless I fuck it up myself, I'm going to be saved by the bank. On the other hand, on Bitcoin I can fuck it up myself but if someone else fucks me up then I'm SOL and can go eat ham for all that Bitcoin cares. For the average users the question of using Bitcoin has become irrelevant with SEPA Inst. Banks are faster with it and offer more features.
  - puranjay 8y ago
    I don't understand this thing about slow financial transactions. Does it really take days to send money from one account to another in the US? Here in India, we have a thing called IMPS. You can send money instantly from one account to another. Transaction cost is a flat Rs. 5 (less than $0.10) for any transaction size. There are other newer protocols as well such as UPI which I haven't really used because IMPS serves my needs perfectly. Sending money to another account is basically a non-issue here.
    - zaarn 8y ago
      From my understanding, US transactions can take a week if you're unlike and the banks need to shovel around a bit. And tbh, the banking situation in the US is just amazingly bad. Horrifyingly bad if I believe the more out-there stories I hear from people. The only time I got charged a fee was for a transaction into the US (the fee was currency exchange fee and nothing else). And the fee was seperate so the transaction amount was unchanged. Yet in the US it seems possible that banks will take a piece of a transaction for themselves. --- In search of a solution to a problem nobody but the US had, we have blockchain now.
      - kalleboo 8y ago
- grey-area 8y ago
  The simple feature of reducing settlements from days into seconds is by itself a great use-case. However, there is a lot of structural incentives against it. If you're a big bank and make nice transaction fees because your clients trust you to make a secure, legal, and successful transaction, you probably don't want blockchain A centralised system with trusted nodes is far better for transaction times - this is the worst use-case for a distributed ledger. Blockchains try to avoid trusted nodes, and thus their transactions are slower, because they are multi-node, by design. Banks already provide transfers in seconds (perhaps not in your country). Banks make money because clients trust them, they are insured, provide reversible transactions etc, not because their transactions are slow.
- ForHackernews 8y ago
  > it's ridiculous you need to wait days to transfer money when you can send email in milliseconds. This is only a problem in the USA. By contrast, in Britain, the Faster Payments Service (https://en.wikipedia.org/wiki/Faster_Payments_Service https://en.wikipedia.org/wiki/Faster_Payments_Service) has provided transfers within a few minutes for more than 10 years now. You manifestly do not need a "blockchain" to solve that problem.
dynamoa 8y ago
The problem is industries such as the financial sector are extremely resistant to change. Banks are still using COBOL! They are so slow to adapt, it could take a decade or more for blockchain technology to be integrate.
- beguiledfoil 8y ago
  This is a stronger endorsement of COBOL than it is of blockchain...
  - DonHopkins 8y ago
    And that's why my new startup is all about COBOL on the Blockchain! Next step is an ICO to raise enough money to thaw out some good COBOL programmers... https://medium.com/@donhopkins/cobol-forever-1a49f7d28a39 https://medium.com/@donhopkins/cobol-forever-1a49f7d28a39

by vinni2 8y ago

speedplane 8y ago

The simple feature of reducing settlements from days into seconds is by itself a great use-case. However, there is a lot of structural incentives against it. If you're a big bank and make nice transaction fees because your clients trust you to make a secure, legal, and successful transaction, you probably don't want blockchain, because it's a threat to your business model. That's certainly one of the major reasons it's taking so long to be accepted by mainstream banks. But long term, banks will need to accept faster transaction times. Blockchain or not, it's ridiculous you need to wait days to transfer money when you can send email in milliseconds. Rather than accept Bitcoin, it's far more likely big-banks will get together and form their own crypto coin, which will enable faster transfers, but keep them in control. They'll get regulations passed that will make Bitcoin and most other crypto currencies illegal or legally risky, whereas their system will be blessed by regulators. Under this scenario (I think the likeliest), the existing power hegemony stays this same, crypto-currency's idealistic roots become viewed as naive and antiquated, and consumers get slightly faster transfers through their same old banks with marginally lower transaction fees.

vkou 8y ago
> The simple feature of reducing settlements from days into seconds is by itself a great use-case. The reasons for why settlements take days, and not seconds, is procedural, not technical. If the financial world wanted instant settlements, we would have had them decades ago. The financial world optimizes for intent and compliance, not speed. This is why settlements take days, and why cryptocoins aren't very interesting to it. Transferring money from one account to another account is as simple as updating two rows in a database. That the database is not a distributed proof-of-work ledger has nothing to do with it taking days.
- jmknoll 8y ago
  Can you expand on this a little more? Why does the financial sector want settlements to take longer?
  - handsomechad 8y ago
    presumably for time to detect and prevent fraud or illegal transactions.
  - tialaramex 8y ago
    Invariably for some fraction of transactions you'll later find out the settlement shouldn't have been executed. It doesn't matter whose "fault" that is, either way somebody will get screwed when this happens. If you wait longer, you may detect this before settlement completes and nobody gets screwed. In my country there's a scam where people find out you're buying a house through a particular solicitor with a large cash transfer, then they send you an email or even a physical letter saying there's a problem, the solicitor just found out their firm got a new bank, or whatever, please transfer the house money to the new account. Of course it's a lot of money so most people will want to check this is right - they provide their phone number on the message. This number, of course, is part of the scam and a "secretary" will answer saying your solicitor is busy right now, but yes, they're very sorry, the message is genuine and please use the new account details. The large sums involved mean this scam is very lucrative even if it doesn't work on say, 99% of potential victims. If the victim realises they've been scammed ten minutes after the transfer, chances are good the bank can fix it, because settlements aren't really instant. If they realise the next day, or two, or three days later, the money is gone. It went to a mule, who has already forwarded it, the police might arrest the mule if they can find them, but the mule doesn't have your money, they're just another sucker.
  - piva00 8y ago
    Risk aversion (against fraud, criminal activities, etc.) and also because a bank earns money as long as it can hold that money, every day that money is accruing interests so if you can hold on that money for longer it makes you more money without any downsides.
zaarn 8y ago
>But long term, banks will need to accept faster transaction times. Blockchain or not, it's ridiculous you need to wait days to transfer money when you can send email in milliseconds. Already happening. SEPA Instant is either being released or in trial phases. My bank is trialing it, a <10 second transaction costs 1€ fee flat, normal SEPA is still free. And banks offer me more in terms of personal security. If I lose my debit card, I get all damages reimbursed. If the bank gets hacked, there is insurance. Unless I fuck it up myself, I'm going to be saved by the bank. On the other hand, on Bitcoin I can fuck it up myself but if someone else fucks me up then I'm SOL and can go eat ham for all that Bitcoin cares. For the average users the question of using Bitcoin has become irrelevant with SEPA Inst. Banks are faster with it and offer more features.
- puranjay 8y ago
  I don't understand this thing about slow financial transactions. Does it really take days to send money from one account to another in the US? Here in India, we have a thing called IMPS. You can send money instantly from one account to another. Transaction cost is a flat Rs. 5 (less than $0.10) for any transaction size. There are other newer protocols as well such as UPI which I haven't really used because IMPS serves my needs perfectly. Sending money to another account is basically a non-issue here.
  - zaarn 8y ago
    From my understanding, US transactions can take a week if you're unlike and the banks need to shovel around a bit. And tbh, the banking situation in the US is just amazingly bad. Horrifyingly bad if I believe the more out-there stories I hear from people. The only time I got charged a fee was for a transaction into the US (the fee was currency exchange fee and nothing else). And the fee was seperate so the transaction amount was unchanged. Yet in the US it seems possible that banks will take a piece of a transaction for themselves. --- In search of a solution to a problem nobody but the US had, we have blockchain now.
    - kalleboo 8y ago
grey-area 8y ago
The simple feature of reducing settlements from days into seconds is by itself a great use-case. However, there is a lot of structural incentives against it. If you're a big bank and make nice transaction fees because your clients trust you to make a secure, legal, and successful transaction, you probably don't want blockchain A centralised system with trusted nodes is far better for transaction times - this is the worst use-case for a distributed ledger. Blockchains try to avoid trusted nodes, and thus their transactions are slower, because they are multi-node, by design. Banks already provide transfers in seconds (perhaps not in your country). Banks make money because clients trust them, they are insured, provide reversible transactions etc, not because their transactions are slow.
ForHackernews 8y ago
> it's ridiculous you need to wait days to transfer money when you can send email in milliseconds. This is only a problem in the USA. By contrast, in Britain, the Faster Payments Service (https://en.wikipedia.org/wiki/Faster_Payments_Service https://en.wikipedia.org/wiki/Faster_Payments_Service) has provided transfers within a few minutes for more than 10 years now. You manifestly do not need a "blockchain" to solve that problem.

dynamoa 8y ago

The problem is industries such as the financial sector are extremely resistant to change. Banks are still using COBOL! They are so slow to adapt, it could take a decade or more for blockchain technology to be integrate.

beguiledfoil 8y ago
This is a stronger endorsement of COBOL than it is of blockchain...
- DonHopkins 8y ago
  And that's why my new startup is all about COBOL on the Blockchain! Next step is an ICO to raise enough money to thaw out some good COBOL programmers... https://medium.com/@donhopkins/cobol-forever-1a49f7d28a39 https://medium.com/@donhopkins/cobol-forever-1a49f7d28a39