#Goldman Sachs CFO Martin Chavez said a report that stated the bank was closing or delaying its #cryptocurrency trading desk was “#fake #news.” This information appeared on Bank Innovation and across business media yesterday. Chavez told the audience at TechCrunch Disrupt yesterday (video here) that desk or no desk, Goldman will continue its exploration of […]
Bank Innovation
#Goldman #Sachs is reportedly dropping #plans for a #cryptocurrency #trading #desk. The news, which broke late yesterday, sent #crypto prices further down, but in this bear market, you’d be excused for not noticing. The news, though dismissed or even spun into a good thing by crypto enthusiasts, can hardly be taken as a positive sign […]
Bank Innovation
A lot gets published on a daily basis about the seemingly awesome, game-changing possibilities of #blockchain and other distributed ledger technologies (“DLT”) applied to smart contracts, optimising payments systems and other aspects of the financial markets. A growing number of financial entities are seriously investing in it, and we keep reading and hearing that this is the future of financial markets.
The message for financial entities being: get in the game now or risk irrelevance tomorrow.
So what are these distributed ledger technologies all about, and are they all they’re cracked up to be? DLT, in its various flavours, is the #technology behind #Bitcoin and every other #cryptocurrency. The blocks necessary to put together the puzzle to complete a transaction are distributed across a decentralised computer network of users, and DLT’s main selling point is that it’s self-authenticating and very difficult to tamper with.
Around 2016, #banks started to get very excited about DLT because they figured that it could be applied to efficiently and quickly settle payments and securities transactions, and even to develop smart contracts: algorithm-based programmes that use DLT to automatically detect when a party performs its obligations or fails to do so, and trigger payments or penalties accordingly. It’s easy to see why financial entities get so excited about DLT: it can significantly cut down the time required to settle transactions (a process that normally takes two or three days for securities), and automate verification procedures which are currently carried out manually.
Ever since that epiphany, financial entities’ investment in DLT has grown dramatically, whilst the rest of us wait with bated breath in anticipation of a brave new financial world any day now – only that it might not happen just yet.
The fact of the matter is that DLT was developed for the purpose of sustaining cryptocurrencies (and smart contracts, in the case of Ethereum), and it works well in that application. But just because DLT fits the bill for cryptocurrencies, does that mean that it will also do a good job when applied to the financial market infrastructures?
A few days ago, the Dutch Central Bank published a report with its conclusions on a series of blockchain trials conducted over the past three years to assess the actual usefulness of DLT in realistic financial market infrastructures scenarios. These trials are particularly insightful for a number of reasons:
When it comes to financial markets infrastructures, there are strict requirements in terms of authorisation, availability, capacity, costs, efficiency, legal certainty, reliability, scalability, security, sustainability and resilience, and each of them is a deal breaker. Current interbank payment systems, such as Target2 in the Eurosystem, meet all of the above requirements and, in the words of the Dutch Central Bank “are highly efficient, can handle large volumes and offer the legal certainty that a payment is completed.” It follows that any new technology must at the very least tick all boxes, and additionally show distinct advantages, if it is to replace existing systems.
So did DLT live up to the hype? Not quite, it seems. Again, quoting the Dutch Central Bank: “The blockchain solutions we tested proved to be inefficient – in terms of both costs and energy consumption – and unable to handle large numbers of transactions. Furthermore, several consensus algorithms we used will never achieve the full certainty of a transaction, so that it cannot be undone, which the central banks&39; Target2 system offers. Other algorithms are able to withstand parties with malicious intent and have the potential of raising the [financial market infrastructures’] cyber resilience, but they currently fail to meet other [financial market infrastructures] requirements. DLT may well offer enhanced efficiency in payments that involve multiple currencies, however”.
What does this all mean? It means that, though “the blockchain technology underlying bitcoin is interesting and promising, and future algorithms may well offer improved compliance with [financial market infrastructures] requirements” in its current form, DLT does not seem to cut the mustard.
Undeniably, DLT is an exciting technology and, in some form yet to be developed, it might be just the ticket to improve the efficiency of financial settlement systems. Just don’t expect that to happen next week.
[linkedinbadge URL=”https://www.linkedin.com/in/adolfo-pando-molina-5b4a7555″ connections=”off” mode=”icon” liname=”Adolfo Pando-Molina”] Adolfo Pando-Molina is CEO & General Counsel of RegBot®
PREMIUM –#Facebook has changed its stance on #cryptocurrency ads by reversing a ban it had placed on the ads only five months ago. The news didn’t do much for #bitcoin, the most well known cryptocurrency, which is trading today a little above $ 6,000. Facebook is reversing the ban it placed in January on cryptocurrency advertisers, […]
Bank Innovation
New entrants in the lending field are using #alternative means — #cryptocurrency-backed loans to “social credit,” a measure of the strength of your social connections — to offer credit to the underbanked. Cryptocurrency HODLers and miners will soon be able to use their assets as collateral for fiat currency loans with Cereal, a Moscow-based lending platform […]
Bank Innovation
#Cryptocurrency is going mainstream, or rather, #banks and cryptocurrency exchanges are growing #more enmeshed. Jamie Dimon and Warren Buffett may still think #bitcoin is a Ponzi scheme, but in the meantime, Goldman Sachs has reportedly opened a crypto trading operation, apparently a first for the banking industry, and #Coinbase, the market-leading wallet and exchange, is […]
Bank Innovation
#Facebook has formed a team to tackle #blockchain initiatives. And it has put the former PayPal President David Marcus in charge of the effort. Marcus’s involvement implies that the blockchain effort might have some financial services implications. Last December, Marcus joined the board of Coinbase, the #cryptocurrency exchange. Facebook announced a whole slew of executive changes […]
Bank Innovation
#Square made a splash when it announced it would sell #bitcoin in its Cash app, but failed to make much money doing so, it was revealed yesterday. But working with the #cryptocurrency taught the payments company quite a bit #about #blockchain #technology, and how it ends up employing that knowledge may be the true payoff […]
Bank Innovation
EXCLUSIVE – Payments company #PayPal might not see immediate value in #cryptocurrency, but it’s continuing to see more value in its P2P payments service #Venmo, according to the company’s Q1 earnings call yesterday. On the subject of cryptocurrency, Dan Schulman, company CEO said during the call: We’ve experimented with Coinbase and others in terms of […]
Bank Innovation
EXCLUSIVE— #Cryptocurrencies are experiencing one of their highest points in recent weeks, after remarks made by former financial regulator Gary Gensler brought back concerns that certain #tokens should really be considered #securities. The remarks point to a reoccurring #debate among #cryptocurrency aficionados about the nature of #digital currency, which is having its first positive movements […]
Bank Innovation
Reply