The End of the Year, the End of an Era…
December 26, 2017
Just read an article on how big British banks no longer consider the blockchain the “boogie-man” but now it’s the savior of the industry. With that comes the death knell not only for the old way of doing business but but for the 20th century as whole, all wrapped up neatly the way the 19th century was a million miles away in 1918. But that change took a cataclysmic war to finally drive the stake through the heart of monarchies, institutionalized colonization and extreme wealth disparity. The 20th century wrought the Roosevelt Republic, worker unions, cheap electricity and the “Age of Oil”. Well, those are pretty much gone too, and with the exception of income disparity, the slate is being wiped clean. A new beginning awaits. And like anything unknown it breeds both apprehension and hope at the very same time.
In this case, because of our culture’s irrational insistence that technology is akin to magic or the will of the gods, “Bitcoin”, “blockchain”, “digital-currency” stir more emotions than the Israeli–Palestinian conflict.. My guess is that was pretty much the same reaction when man discovered how to harness fire. Yes, this simple blockchain technology has the power to propel humankind to the “next level” and its not nearly as complicated as everybody believes it to be. But I’ll get into that later.
The article struck me in particular because of its hubris. Rather than admit the current world-wide financial structure has failed, the banks (or the aritcle, at least) take the stance that the chain is being adopted only to “reduce costs” and are trying their best to find a way to fit it into the “old” system. Whenever a disruptive technology comes along, whoever is safe guarding the current status quo goes through the same process as a someone with a terminal illness; first, denial, then anger, then a dull aching acceptance. That’s when some people resign gracefully, some go on a bucket list, some do whatever they can to finish the string on their own terms. But the difference here is that this time it’s not terminal. Finance, money, wealth and the institutions that created it and supported it for the last 500 years are not going to die. But they will be reborn. The blockchain is not a death knell but an alarm clock. It’s time to wake up. Fully adopted, it will allow banks to process payments faster and more accurately, while reducing transaction execution costs and the requirement for exceptions.
Fans of block technology believe that it can be used to create a safe and convenient alternative to time-consuming and costly banking processes. Theoretically, agile startups could build software based on block protocol, hoping to provide a safer, quicker, cheaper and more transparent alternative to traditional financial intermediaries such as banks, brokers and complex billing processes. There are, of course, many potential applications of block technologies, including the fight against identity and money laundering fraud, the improvement of knowledge-based and collaborative systems with customers and the acceleration of cross-border payments, L/C procedures and lending.
In short, the Blockchain is our friend not our foe. However, it does change the rules. The way we view money now is based on the capitalist theory of financial Darwinism, survival of the “fittest”.., i.e., to the victor go the spoils. In other words, if someone makes money, someone must lose money in a sort of zero-sum game. That’s what creates the competitiveness that drives innovation. It’s also what drives the greed, inhumanity and mean-spiritedness often associated with the current “financial markets”. Alas, these are not the faults in the system but faults that are in ourselves. Its people that are greedy, inhumane and mean-spirited…not money. The blockchain quietly removes the “human” factor and lets the power of mathematics take the reins.
Central banks around the world are exploring the possibility of moving some of their payment systems to block technology or even to use it to launch the digital currency. Money, after all, is really just a man-made “trust” system. Trust is intangible but essential for any human being to live as a human being. It is up to each of us to make trust, our own and others “tangible”.
Are we as a species ready to but our trust in a decentralized system based entirely on mathematics. It’s certainly easier than trusting other human beings. In finance as new ideas emerge, expect banks and related intermediaries to agree on common standards, with regulatory support, for sharing the costs of building the blockchain, whether it uses existing infrastructure or not. Post-trade settlement for a wide range of securities, including syndicated bank loans, is one of the most commonly discussed potential cases of block technology..
It is therefore another way for the back-office of banks to use the blockchain to increase the speed and efficiency of settlement systems, while the clearing coin allows banks to transfer value and assets without having to wait for a long time, as is currently the case for traditional methods. The biggest key to translating the blocking potential into reality is the cooperation of banks in order to create the necessary network for supporting global payments.
However, as in the case of trade finance, it says that the block technology itself will not solve all the problems related to the failure of the current financial systems.