Not Every Bank Needs Their Own Private Blockchain

Not Every Bank Needs Their Own Private Blockchain

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It is no secret that every financial entity in the world wants to create their distributed ledger. Rather than embracing an open standard, banks want to control everything that goes on with blockchain technology. A lot of institutions are forking the Ethereum blockchain to create a permissioned ledger. That is rather interesting, considering that there are so many blockchain providers out there.

 

The primary purpose of distributed ledgers it to share information across a network with other participants. In the Bitcoin world that information is shared with millions of people in real-time. Information is accessible by anyone in the world and does not require special privileges or permission. It is an ecosystem where trust is not an issue, so to speak.

Financial institutions do not like this open and public nature of the Bitcoin blockchain, nor do they like to see everything on the Ethereum blockchain either. Instead, they fork the latter and create their own permissioned and private ledgers. Only verified participants can see the information on this network. In a way, this renders the whole idea of distributed ledgers completely useless, as it still requires a trust factor.

To make matters progressively worse, every bank and their dog seem to be creating their blockchain these days. Even though the R3 consortium has many of the top global banks under its umbrella, institutions continue to explore other options as well–not that there’s anything wrong with that, as there is no need to put all eggs in the same basket.

What is a problem, however, is how all of these different ledgers are supposed to communicate with one another. Blockchain technology is designed to create universal systems that work for everyone. Private ledgers may only work with one bank and a handful of its partners. Anyone dealing with other financial institutions and that group of banks will have to rely on legacy systems to complete transactions.

It is difficult enough to make blockchain technology work with existing legacy systems. It would only make matters worse if every bank had its own blockchain; this is no solution.  Instead, this approach only strengthens the need for an open standard that can be used by everyone. It is doubtful whether institutions will see it that way, as they want control over everything at all times.

[The Merkle]

October 3, 2016 / by / in , , , , ,

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