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The main gain is in acting as a trusted clearing system. Clearing takes less time than FedWire or ACH. Settlement, on the other hand, still has to go through

The main gain is in acting as a trusted clearing system. Clearing takes less time than FedWire or ACH. Settlement, on the other hand, still has to go through the Federal Reserve.

buzzerbetrayed 7y ago
But using a database as a ledger would clear faster than even the fastest blockchain, wouldn’t it? Or am I misunderstanding what you mean by “clearing”. I’m assuming you mean how long it takes for person A to get money to person B.
- steveharman 7y ago
  Can't a database be potentially breached and suddenly my account has all the "currency" copied I to it from yours? Until Quantum Computing comes of age, this is theoretically much harder with DLT / blockchains.
  - roywiggins 7y ago
    Blockchains can (and quite often do) have bugs in their implementation too, they're not entirely magic.
  - simias 7y ago
    All banks are effectively running a huge database at the core, yet that's not a common problem. They have procedures, they have backups and they have human oversight. The last element is key, if somebody manages to hack into the system and send all the money into their own account the bank's administrator can detect the problem and say "well, that's clearly not supposed to happen, let's roll that back". On a decentralized, trustless blockchain you have no such thing. So you either end up hard-forking like Ethereum did after their DAO debacle (but then are you a decentralized trustless system anymore?) or you continue normally and basically the people who lost their money are screwed.
- espadrine 7y ago
  What takes time in clearing is not information transmission. Most of the time is spent managing risk. Sure, that includes persistence, but that is also marginal. You also have to validate integrity, authenticity, cross-reference against legal requirements (eg. enforce rates, detect fraud — including internal fraud, apply sanctions lists, estimate AML-CFT risk, …). You have to make sure all accounting rules are followed. You have to abide by the procedures that you and the regulator determined. All that with no downtime. All of this takes time. Historically, a large part was manual. While automation has helped, there are quite a few clearing houses where an army of programmers is spent battling the chaos. A system least tolerant to inconsistencies and most tolerant to failure, increases reliability while reducing risk. The cryptographic properties of a distributed blockchain help there, regardless of whether the system has open membership (which is not Facebook’s case, unlike most cryptocurrencies). A different ledger design can be equally powerful or more. In fact, I expect that a lot of the compliance and accounting logic can be expressed elegantly in a custom design.

The main gain is in acting as a trusted clearing system. Clearing takes less time than FedWire or ACH. Settlement, on the other hand, still has to go through the Federal Reserve.

buzzerbetrayed 7y ago

But using a database as a ledger would clear faster than even the fastest blockchain, wouldn’t it? Or am I misunderstanding what you mean by “clearing”. I’m assuming you mean how long it takes for person A to get money to person B.

steveharman 7y ago
Can't a database be potentially breached and suddenly my account has all the "currency" copied I to it from yours? Until Quantum Computing comes of age, this is theoretically much harder with DLT / blockchains.
- roywiggins 7y ago
  Blockchains can (and quite often do) have bugs in their implementation too, they're not entirely magic.
- simias 7y ago
  All banks are effectively running a huge database at the core, yet that's not a common problem. They have procedures, they have backups and they have human oversight. The last element is key, if somebody manages to hack into the system and send all the money into their own account the bank's administrator can detect the problem and say "well, that's clearly not supposed to happen, let's roll that back". On a decentralized, trustless blockchain you have no such thing. So you either end up hard-forking like Ethereum did after their DAO debacle (but then are you a decentralized trustless system anymore?) or you continue normally and basically the people who lost their money are screwed.
espadrine 7y ago
What takes time in clearing is not information transmission. Most of the time is spent managing risk. Sure, that includes persistence, but that is also marginal. You also have to validate integrity, authenticity, cross-reference against legal requirements (eg. enforce rates, detect fraud — including internal fraud, apply sanctions lists, estimate AML-CFT risk, …). You have to make sure all accounting rules are followed. You have to abide by the procedures that you and the regulator determined. All that with no downtime. All of this takes time. Historically, a large part was manual. While automation has helped, there are quite a few clearing houses where an army of programmers is spent battling the chaos. A system least tolerant to inconsistencies and most tolerant to failure, increases reliability while reducing risk. The cryptographic properties of a distributed blockchain help there, regardless of whether the system has open membership (which is not Facebook’s case, unlike most cryptocurrencies). A different ledger design can be equally powerful or more. In fact, I expect that a lot of the compliance and accounting logic can be expressed elegantly in a custom design.