The fintech flavour of the month is the blockchain. This is an amazing new technology that will completely revolutionise our entire industry and make the world a better place.

“Blockchain, as the digital ledger, will heavily impact the way we do business in the financial services industry” [Oliver Bussmann, CIO of UBS] [From CIO says blockchain ‘will heavily impact’ financial services | CIO]

The article is not specific as to how the blockchain will heavily impact financial services, but I’m sure Oliver is barking up the right tree and, while I haven’t spoken to him about this, I imagine that he means some form of shared private ledger rather than the Bitcoin blockchain. The super smart Vitalik Buterin, who some of you will have met at our annual Tomorrow’s Transactions Forum this year, wrote about this on the Ethereum blog a while ago.

…there is good reason for the focus on consortium over private: the fundamental value of blockchains in a fully private context, aside from the replicated state machine functionality, is cryptographic authentication, and there is no reason to believe that the optimal format of such authentication provision should consist of a series of hash-linked data packets containing Merkle tree roots

[From On Public and Private Blockchains – Ethereum Blog]

He must be correct. For most of the businesses that I am interested in (i.e., the ones who pay Consult Hyperion money for services rendered) the use of what Vitalik calls a “consortium” blockchain, or what I referred to as an open private replicated decentralised shared ledger at NextBank in Barcelona, is the way forward but it is far too early to say exactly how that ledger should work and anyone that says they know otherwise should be treated with some suspicion.

Note that by creating privately administered smart contracts on public blockchains, or cross-chain exchange layers between public and private blockchains, one can achieve many kinds of hybrid combinations of these properties. The solution that is optimal for a particular industry depends very heavily on what your exact industry is.

[From On Public and Private Blockchains – Ethereum Blog]

Indeed. And we don’t yet know what is optimal for our industry. We can all agree that the use of shared ledgers, of which the blockchain is an example, is going to transform financial services. But why? Well, in an absolutely brilliant King’s Review piece about the relationship between the use of ledgers, the law and enterprise, Quinn DuPoint and Bill Maurer make explicit the relationship between the technology, the private maintenance of the technology and the public use of the technology. They go on to say that:

Blockchain systems occasion a reconsideration of two of the central legal devices of modernity: the ledger and the contract.

[From Ledgers and Law in the Blockchain | King’s Review – Magazine]

This insight around private maintenance and public use is critical to the development of a narrative around the blockchain that can help engineers, investors, businesses and regulators to construct a paradigm for the use of the blockchain in financial services. This is what Richard Brown, Sally Parulava and I argue in a paper called “Toward Ambient Accountability: Shared ledgers, glass banks and the legacy of the great financial crisis” that is in draft at present but that we will be sharing soon.

More than the robustness of shared ledgers or their potential for innovation, for the financial services the ability of technology to deliver “translucency” through cryptography is (I am convinced) far more radical than it seems at first and there are plenty of reasons to believe that building glass institutions around replicated shared ledgers is the first step to a new kind of financial system. I’m spoke about this at NextBank Barcelona today (you can see my slides here at Slideshare), and was interested to see the feedback from the pretty well-informed folk there.

If my suspicion is correct, and transparency is more important than computational efficiency then we are at the dawn of a new era and ambient accountability might be the real technology legacy of the last financial crisis.


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