By Bernard Lunn
My gut tells me that an immutable shared database is a real IT breakthrough.
To learn more and see if my gut instinct is correct, I attended an event on Wednesday evening in London at the Swiss Embassy where some of the leading minds in blockchain technology were assembled:
Mike Hearn
Mike is a software developer who specialises in low level systems software.
He has previously worked for Google and now focuses on the Bitcoin virtual currency system.
We covered his Lighthouse project here.
Christian Decker:
Christian is a PhD Candidate at the Distributed Computing Group ETH
(Swiss Federal Institute of Technology, Zurich), advancing cutting edge research on cryptocurrencies.
Vitalik Buterin:
Vitalik is the Founder and Chief Scientist of Ethereum and Co-Founder and Head Writer of Bitcoin Magazine.
(We have been interested in Ethereum since we first spotted it a year ago and have covered it many times).
Robleh Ali:
Rob is Manager Digital Currencies in the Notes Directorate at the Bank of England.
Oliver Bussmann:
Oliver is Group Chief Information Officer at UBS and a global executive with
25 years of experience with UBS, SAP, Allianz, Deutsche Bank and IBM.
Moderator: Richard G Brown
Richard is Executive Architect, Industry Innovation, Banking and Financial Markets for IBM UK and adviser on cryptocurrency and decentralised consensus space.
When I want to understand the fundamentals of blockchain technology I read Richard Brown’s blog.
I went to the event to help me learn the answer to three questions
- Is shared immutability the reason all the big banks are investing in blockchain R&D?
- Are there any Bank blockchain initiatives emerging from the innovation sandbox?
- Is a permissioned blockchain system secure?
Is shared immutability the reason all the big banks are investing in blockchain R&D?
This was my theory going into the event. The theory is that for interbank use cases in domains such as post trade settlement and compliance, a traditional shared database is not enough. There must be 100% confidence that none of the participants can change the database.
Are there any Bank blockchain initiatives emerging from the innovation sandbox?
There is certainly a lot of activity. Most major banks have announced some R&D type initiative and this news about inter-bank standards initiatives is significant:
“Nine of the world’s biggest banks on Tuesday threw their weight behind blockchain, the technology that powers bitcoin.
Barclays, BBVA, Commonwealth Bank of Australia, Credit Suisse, JPMorgan, State Street, Royal Bank of Scotland, and UBS have all formed a partnership to draw up industry standards and protocols for using the blockchain in banking.
The partnership is being led by R3, a startup with offices in New York and London headed by David Rutter, the former CEO of ICAP Electronic Broking and a 32-year veteran of Wall Street.”
Update: Richard G Brown is now working for this R3 firm.
The bank’s interest seems to be nothing to do with Bitcoin. Nor is this disruptive to the banks. This is disruptive for certain intermediaries that the banks use to process transactions. They could be replaced by an immutable shared database and some smart contracts. However, for the banks this is sustaining innovation. This is nothing more or less than the on-going quest to take costs out of IT processes. That may sound boring (yawn, only sustaining innovation) but when banks and brokers spend over $500 billion a year on IT, it is interesting to a lot of people.
The question is whether any systems are close to going live or are we still in the R&D phase? I can see B2C Ethereum apps in the wild, but these B2B use cases are more complex.
None were mentioned. This is not surprising. These are complex processes and the technology is still new.
Is a permissioned blockchain system secure?
This is a complex technical debate.
Many take the view that the only way to have secure transactions is to have them verified by the Bitcoin miners.
The other view is that a permissioned blockchain enables transaction throughput to scale (and that scaling is an issue with Bitcoin).
I think it is about B2C vs B2B. A B2C system must be permissionless (could use Ethereum or Sidechains). However the technical people I trust tell me that permissioned blockchains are secure enough for B2B apps. To put that in context, SWIFT has 9,000 member banks. If all member banks used a permissioned immutable shared database, that would be a tiny, tiny number of nodes compared to even a very small B2C system.
The “civil war” over Bitcoin block size was much discussed but it felt like a distraction, People want an answer – one way or another – so that one can plan a way forward (could be Ethereum or Sidechains). I sense consensus that it should be increased. All the heated debate was just about how much and how fast. There is clearly a governance issue around Bitcoin.
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