Banks really want to understand the blockchain

Banks are very interested in the blockchain at the moment, the technology that underpins digital currency bitcoin.

The technology has the potential to make money transfers faster and cheaper, as well as having potential revolutionary applications for everything from stock issuing to the diamond trade.

22 of the world’s leading investment banks have formed a partnership to look at how the blockchain can be used in traditional banking.

But the former head of Barclay’s technology division in Europe, the Middle East, and Africa says it is just a “cynical” attempt to try and control the technology.

Watson told Business Insider: “I can tell you, it’s the most cynical thing I’ve ever seen. What they’re going to do is what they always do — form a little consortium to block.”

Anthony Watson believes the banks are trying to build their own proprietary internal blockchain that will deliver benefits for them but not customers and stop fintech challengers from taking them on.

http://www.businessinsider.com.au/banks-approach-to-bitcoin-is-cynical-says-an-ex-barclays-tech-chief-2015-10

I come form a fintech background, so I too have a very cynical view about this. There has been plenty of discussion pointing out that centralized permissioned blockchains are just databases. I do believe the financial services sector can leverage blockchain in some specific use cases for cost savings around existing inter-party processes such as settlement, payment of dividends & bond coupons, and other back office inter-party administration. In the settlement case blockchain gets dumbed down to a shared transaction audit trail, but the first thing the various firms sharing it do is whack the data back into their own database. So really it’s a shared communication protocol with replay. In the coupon/dividend case, expect to see a direct 1:1 link to a fiat currency rather than some inter-party crypto. But in terms of customer facing money services, there is no merit in the idea of a consortium controlled blockchain. True it may still get market penetration with the aid of heavy marketing, just as there are plenty of mugs out there who drink brown sugar water and other similar products that require more money spent on their marketing than on their ingredients. The problem is we the general population have become too used to others looking after our interests, which too often translates with the passage of time into abusing our interests. We the people need to take back the responsibility that we have all too willingly given up.

But there are other things driving this too - banks wanting to look “with it”, geeks bamboozling bosses into allocating budgets, same geeks wanting to get cool stuff on their CVs, the fact that all big banks have a room full of people somewhere whose job is to “play” just in case something comes of it (which they always dress up with impressive tech lab names), etc. Of course these geeks know enough to feel uneasy about working for criminal organizations, but have dug themselves into debt holes that they need their high salaries to service - how so many get trapped into working for “the man”. But geeks wanna have fun where ever they work.

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Speaking of blockchain interest, Vermont (my state) is actually creating a committee to study use case situations for blockchain technology. I emailed the governor when I heard about this (pretty sure it was on coindesk) and got this as a reply, along with the head of the committee’s email address:

      • Blockchain Technology * * * Sec. A.3. STUDY AND REPORT; BLOCKCHAIN TECHNOLOGY (a) On or before January 15, 2016, the Secretary of State, the Commissioner of Financial Regulation, and the Attorney General shall consult with one or more Vermont delegates to the National Conference of Commissioners on Uniform State Laws and with the Center for Legal Innovation at Vermont Law School, and together shall submit a report to the General Assembly their finding and recommendations on the potential opportunities and risks of creating a presumption of validity for electronic facts and records that employ blockchain technology and addressing any unresolved regulatory issues. (b) Each participating Vermont delegate to the National Conference of Commissioners on Uniform State Laws and each participating representative of the Center for Legal Innovation at Vermont Law School who is not also an employee of the State of Vermont and who is not otherwise compensated or reimbursed for his or her time shall be entitled to per diem compensation pursuant to 32 V.S.A. § 1010(b).
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In Australia, from a government standpoint, generally the technology is in a watch and see but supported as an emerging industry (the government here is more interested in how to tax and collect). End of 2014 a Senate enquiry was held and was open to the public and private sectors to comment. This enquiry was quite positive and the very short summary of that equiry was that anyone outside of the financial industry was supportive of what could be offered by the blockchain, for all the respondents from the financial sector the replies were less than favourable.

The financial businesses see bitcoin as a major threat to their business model

Fast forward 12 months, and number of bitcoin businesses and individuals have had their bank accounts suspended or difficulties in doing business, while some bitcoin businesses have moved offshore to more favourable destinations. In Australia, there are 4 major banking institutions and each of them have made moves (possibly colluding) to shut out both bitcoin businesses and individuals.

I think what can be gleamed from this is that although the banks many study and even use the blockchain technology for their own purpose, Banks will remain banks, and their interest would be how to transact as cheaply as possible, while maximizing profit (for the shareholders) from its users (thats you and me). I don’t see banks jumping onboard with Bitcoin per se, but i do see them taking the best of what blockchain has to offer.

Ultimately, i hope that this situation improves, as for the general populous this is the easiest way to onramp to owning Bitcoin. The other option is that people see Bitcoin (and crypto in general) as having real tangible value and not exchange between the 2.

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The Australian Competition and Consumer Commission is investigating why Australian banks are closing the accounts of bitcoin businesses, amid concerns banks are colluding to block emerging competitors.

ACCC chairman Rod Sims told The Australian Financial Review the investigation was in its early stages, but had started with requests being sent to banks to explain their actions. He hoped to get to the bottom of the matter within a couple of months.

The investigation comes after The Australian Financial Review revealed at least 17 emerging Australian bitcoin companies had received letters from various institutions, telling them their bank accounts were being closed. The ACCC was then contacted by Nationals Senator Matthew Canavan, who asked for an investigation.

“It is being investigated. We have already spoken to some banking representatives and sought some information. It is all still early stage, but under way,” Mr Sims said.

Read more: http://www.afr.com/technology/accc-investigating-why-banks-are-closing-bitcoin-companies-accounts-20151018-gkc5iv

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In my experience the banks are rarely on the wrong side of the establishment, despite show fines and other wrist slaps for PR purposes. So it will be interesting to see what actually happens in this case.