Please Don’t Create Your Own
“Blockchain buzz” is something every finance professional should be aware of by now. Whether you are interested in this emerging financial technology or not, it is coming and savvy managers ought to pay attention to what the blockchain can do for their bank.
There are many services boasting hyperbolic claims of fast and straightforward commercial leverage of blockchain; but, most are chaotic and confusing. Within this industry, projects range from working applications to misunderstood concepts and even some that are total fiction. The matter is complex, there are no final answers, but let us assure you that the simplest approach, as in most cases, is best.
Specifically, we strongly advise against wasting resources on in-house blockchain research or, even worse, creating a “private blockchain” of your own. There are much less expensive and more productive scenarios that may bring you new customers and reduce costs in a matter of weeks. You should consider reaching out to the open crypto community and joining an existing toolset. At least, you’ll learn a lot more much sooner for much less.
Open Development Offers Better Value When Adopting Underlying Technologies
Thousands of people hired by bank consortiums worldwide have been working for over two years on this matter. The entire “private blockchain” industry might just be variation of the old open source stuff — at least based on what has been released publicly — not to mention the proposed solutions are years away. “Blockchain technology” is the incumbent finance industry’s “boy who cried wolf”. It has long been promised but never delivered to a single company in a satisfying way due to a lack of practical applications despite many raw and hypothetical projects.
At the same time, millions of self-motivated independent visionaries and coders have been trying to move further with brilliant proposals that also lack actuality. White-papers and other theories are plentiful while real-life solutions remain to be seen. Meanwhile, large labs with unlimited money have been unable to gain any significant traction. Fears of Bitcoin making the incumbent system obsolete made banks hurry to research the blockchain, create VC groups, preventively invest in promising development teams, sometimes even sabotaging certain initiatives by competitors. Alas, the crowd still has stronger potential. Big banks should wait and observe until they know what to fight since they can’t yet join because of the comparatively low capacity of public networks at present. These challenges don’t exist for smaller banks, however, who have the agility and incentive to try new things.
The Importance of the Free Market for Blockchain Technology
Crafting an in-house blockchain may be presented to the board and investors as something making sense. You can manipulate figures, make a compelling sandbox for ideas but at the end of the day, a “private blockchain” is not any better than a restricted financial market. Even the phrase “private blockchain” itself is unforgivably dishonest. The thing is neither entirely “blockchain” nor entirely “private”. Despite being pronounced by highly respected individuals, it is yet an oxymoron.
Blockchain is the precious but rampantly misunderstood mechanism. The original blockchain — Bitcoin — was not meant to cut costs for traditional finance; it was created to reduce consumers’ costs by replacing incumbent finance. This is stated in the first paragraph of the Bitcoin white paper. Anyway, whatever your position is on these controversial issues, it looks like banks may have overlooked the most important concept of this technology: being as decentralized as possible.
Let us get back to the core underlying problem your Board should be trying to solve when applying to the blockchain technology. The ugly truth is no secret any longer:
What can be gained by teaming-up with an existing Bitcoin and Ethereum based platform:
Being one of the first in this endeavour is not easy. The payments industry is a classic two-sided market case where the payment tools provider is only a catalyst, not a main economic actor. Two-sided networks are economic platforms having two distinct user groups that provide each other with network benefits, thus, the simultaneous growth and involvement of both is needed.
The system does not “ignite” if the critical mass is not reached and this problem is usually so great that it eclipses other aspects and difficulties. As of yet, none of the blockchain-based networks have reached high enough adoption level to be able to coalesce both sides of the market. But, there is hope and we are almost there — especially for smaller and denser markets. Whomever decides to fight for these markets stands to gain significantly as an initial adopter.