Bank of England payments infrastructure would be Blockchain friendly, not Blockchain based

A few weeks ago, two inspiring leaders provided contradicting views on Blockchain and Bitcoin. Jack Ma, along with the announcement of his Blockchain based remittance product made a comment that Blockchain had legs, but Bitcoin was doomed.

BANK-BLOCKCHA

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A few days later Steve Wozniak shared his views that Blockchain was over-hyped (rather dead) and Bitcoin was the thing to follow closely. I was surprised at such contradiction. I have generally agreed with Jack’s view of the world in this context. But when it comes to developments within banking, I am starting to think Steve was more right.

Over the last couple of years, we have seen consortiums, pilots and prototypes using Blockchain fail badly. I wrote about Swift’s Blockchain PoC and the learnings from that a few weeks ago. The conclusion was that,

  • Banks’ back office capabilities needed to get better to use DLT
  • Blockchain scalability must be proven in a commercial environment

After a disappointing PoC with Ripple, Bank of England were conducting another PoC of their new RTGS infrastructure and its interoperability with DLT. And when I went through the results they published, a couple of thoughts crossed my mind.

  • They were largely hedging themselves against a sudden surge in mainstream use of Blockchain – however I largely doubt this would be the case where it involved interfacing with legacy systems and processes.
  • I couldn’t help feeling that BoE were also trying to find a problem that Blockchain would solve – desperately.

These are the key takeaways from the PoC

  • The purpose was to test how the revamped RTGS infrastructure could support settlement for systems operating on innovative payment technologies such as DLT.
    • NOTE: The purpose wasn’t to use Blockchain to execute the payments
  • A cloud based test RTGS service was used, and the participants (with their DLTs) connected to this service using APIs.
  • The results in a gist was that, RTGS could interface with DLT. (EUREKA!!)

Four participants were involved in the PoC

  • Baton: Who connected to the test RTGS service through APIs and used their DLT to provide settlement services. They also demonstrated that a node could manage market risk in real time
  • Clearmatics: Who tested out interoperability of their DLT platform with the RTGS service. They also provided inputs on how cryptographic signatures and proof schemes could help BoE build decentralised systems.
  • R3: While they weren’t connected to RTGS, they came up with the recommendation that the BoE should run a node on the network to achieve greater efficiencies
  • Token: Another participant who didn’t physically connect to the RTGS API, but provided their views on how settlement and collateralisation accounts interact.

But that’s hardly progress. Connecting to a data stream (RTGS) using APIs, pulling some data and using Blockchain to act as a real time ledger in a test environment – doesn’t sound like rocket science to me.

If anything, it feels like a half-hearted attempt to make headlines with “BoE”, “Blockchain” and “successful prototype” on it.

It might be that, Blockchain within banking needs a break, a step back, a deep breath and a re-engage. Its been a good English summer (so far), and time for some tough test cricket. Blockchain hasn’t scored enough in the first innings, got to see if it can do better following on.


Arunkumar Krishnakumar is a Fintech thought leader and an investor.

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