Bitcoin Technology Piques Interest on Wall Street | Hacker News Reader

Bitcoin Technology Piques Interest on Wall Street

nytimes.com

40 pointsjchrisa37 comments

This has nothing to do with Bitcoin. The interest is in distributed ledgers. It's a way to do a distributed clearing house. When twenty or so mutually mistrustful financial firms maintain a blockchain between them, they can have a ledger that no single party, or less than a majority of the parties, can tamper with.

This doesn't require Bitcoins, a currency, or mining. It's a way to solve a problem that currently requires institutions such as the Bank for International Settlements and Depository Trust Corporation.

Bitcoin has demonstrated that the blockchain technology is resistant to attack. Even against massive fraud attempts, and even though many of the major figures in the Bitcoin world ended up going to jail, the blockchain held up. That's impressive.

Permissioned ledgers haven't actually been deployed anywhere. The entirety of this technology is marketing hype, without much of a definition past "Cure's whatever ails your ledger"

Is twenty enough parties to give them each confidence that the network is trustworthy? Seems to easily manipulated it only takes a couple of dishonest parties to defraud the rest.

When the ledger is public, yes. Everyone can see tampering. Right now, the top 3 Bitcoin mining pools have 52% majority control of Bitcoin. The top 6 have 80% control. Bitcoin mining hasn't been distributed for a long time now.

"Seeing" tampering is a completely different proposition than preventing tampering. Any good centralized architecture can demonstrate tampering. Google docs does this all the time.

That requires trusting Google. The goal is to do this without a single trusted party.

If detecting tampering needs to be done without trusting a third party, then md5sum has this figured out back in the early 80's

I can't believe that there's any possibility of banks doing anything of value on the Bitcoin blockchain when they could easily coopt the blockchain tech and set up trusted miners. The public immutable ledger with full transaction history is obviously interesting to Wall St. but what are the chances any of these banks will trust anything of value to the current ideological devs of a ~$3B commodity controlled entirely by unknown Chinese miners? The underlying notional of anything interesting on Wall St. is measured in trillions.. Can you imagine them suffering through the squabbling with the block size debate or hoping that miners don't collude to roll back the last month's transactions?

You seem pretty intent on posting strawman arguments and fud in every bitcoin related thread.

You do realize that it is basically impossible for a miner to roll back last month's transactions and that no such thing has happened at all, right?

Colluding miners could pretty much do whatever they wanted..

> and that no such thing has happened at all, right?

Except that time when 184 billion Bitcoin were created out of thin air and dispersed to two wallets.. Then the devs/miners agreed that the previous 5 hours' worth of transactions shouldn't count and hard-forked at an arbitrary point in the past.

https://en.bitcoin.it/wiki/Value_overflow_incident

Those are two incredibly different things. What you are talking about and linked to was a bug. That has nothing to do with miner colluding with each other to modify the ledger to their benefit.

A couple of weeks ago I talked to the CEO of startup in NYC building a proprietary blockchain-like protocol/product for banks.

According to him if a bank interacts with the bitcoin blockchain in any way (mining and/or posting transactions), they are violating a host of AML and KYC regulations because they do not know the identity of other players on the network.

Apparently the claim could be made that the bank is collaborating with all other miners/transaction creators, and the bank must know certain information about these people. Also if someone posted a transaction from Iran, and the bank helped mine that transaction, that's a big problem.

I don't know if his logic is correct, but it seems many of those in the bitcoin community are underestimating the regulation hurdle that wall street will need to figure out.

If it's "bitcoin-like" then it will be similarly used as bitcoin. The efficiency blockchains offer is regulatory arbitrage. If the proposed system is not-actually-bitcoin-like, and doesn't circumvent regulations, it's hard to see what efficiency is being offered, over a centralized system.

I have no idea if bitcoin is useful for banks. What does seem fairly certain is that these "Bitcoin without the bad guys" pitches are pretty flimsy.

It seems to me that some are overstating their case and believing their bullshit in order to sell the banks a rotten tomato when a perfectly healthy potato exists.

Sort of how years ago some people/companies would claim that using Linux in enterprise would cause all sorts of issues for said companies in order to sell their own propritary and nonopen solution.....

Yes, but if the banks set up their own Bitcoin-like blockchain but with an added certificate authority, then they'd be putting their money where their mouth is, and then you'd be the one looking like you're overstating your case.

As a media skeptic, the 1st suspect is the one who is ascribing motivations to other parties/groups with no evidence. This goes double when something "technical" overlooks technical alternatives that would demolish one's own argument.

Nothing stopping them from doing so, tho the use of a blockchain in such a "centralized" context is silly and an overkill when they can use a normal database with better/faster results especially if they already know+trust each other.

so, tho the use of a blockchain in such a "centralized" context is silly

As you yourself noted, if a dozen banks got together to do this, it wouldn't be any more centralized than what we have now!

The obvious question here is: Why do banks need Bitcoin?

Why does Bitcoin need banks?

Who cares if current banks ever figure out Bitcoin? For the vast majority of people and use cases, Bitcoin makes banks redundant.

What if instead of coopting the tech, they add their resources to the existing blockchain, making it more robust?

The entire point of the above comment is that the bitcoin community and software is not trustworthy for their purposes.

Not today, but maybe tomorrow if banks start mining themselves and dedicate developers to the project.

Yes, but they could start their own closed blockchain instead of mining for Bitcoin.

Or they could just maintain their own ledgers for 1 billionth the computational cost.

Bitcoin by itself doesn't actually need much energy - it could easy run in a single server. The reason it uses so much now is because so many miners have joined, so the software increased the computational difficulty to keep generating 1 block every 10m.

If you run the bitcoin daemon in "regression test" mode, which creates a private, disconnected blockchain, it can actually generate ~200 blocks per minute using just a single CPU.

If a block chain is closed and the membership known, you could use some metric of "organizationally distinct signatories" to determine the length (/cost) of a chain rather than proof of work.

Don't they do that already? What is a 'closed blockchain' if not a sql server? The only value a blockchain has is as a public resource.

A closed blockchain is still distributed (just not open to everyone), and still has different nodes checking up on each other, while an SQL server is a single point of potential fraud.

Do banks process actual transactions through a SQL Server?

Sure, where do you think Oracle gets all their revenue? :) I mean, interbank transactions go through a clearing house like FedACH, but even that is just a remote RDBMS.

This has been posted here before, but many financial firms are interested in a block chain concept (not necessarily bitcoin) for processing settlements. I imagine it will be the same clearing houses and broker-dealers of today, except that counter-party risk is reduced.

The only efficiency that blockchains offer is making KYC and regulatory encumberances redundant. In every other way, blockchains are inferior to incumbent systems. What will likely happen is that the regulatory hurdles that make incumbent systems inefficient will be reduced a bit, under the pretense that doing so is better compromise than using the alternative (bitcoin).

I've read many of these "The NYSE is using bitcoin!" articles and I'm still not sure if the banks are using the wrong words, or if the journalist are? Maybe I'm missing something?

One of the most critical parts of the Bitcoin network is the number of competing (non-colluding) parties doing proof of work. Re-writing the ledge would be entirely possible (and possibly easy) if there were only one or two parties processing transactions.

If its just the NYSE "using Bitcoin technology" then haven't they effectively encoded transactions into a linked-list with a few frivolous hashes placed throughout? You need a lot of competing minors to produce the trusted ledger the global Bitcoin network enjoys. If these banks are serious about using Bitcoin (or at least what I define as Bitcoin) then how do they plan on incentivizing a diverse set of non-colluding minors?

Bitcoin's underlying problem as a monetary system is the same that exists with commodity based currencies like gold.

Almost all economical models that exists out there always reach a point of indeterminacy. What happens when there is massive inequality in the bitcoin world ?

Money has one important purpose :

1) Efficient allocation of labor for society's benefit.

To achieve it we need to establish something that can be used as a source of value.

Bitcoin solves the problem of source of value but we know from history that it doesn't always solve the problem of efficient labor productivity.

Since by definition society requires centralization to direct its purpose. FDR during the great depression had the same problem of a lot of people having liquidity with no need to direct it for labor productivity.

If we lived in a bitcoin world it would be impossible for governments to mobilize itself to direct resources to solve social problems.

"You became rich from digging oil from the ground and making computers ? Too bad I need your money to solve Climate Change and feed the poor"

The blockchain is interesting - I think it can solve public trust issues like when it comes to e-voting and reaching decentralized concession. But when it comes to economics it just seems silly that a completely decentralized system makes sense.

> Money has one important purpose : 1) Efficient allocation of labor for society's benefit.

The real numbers show that maybe around a billion are obtaining much more benefit than they other 5/6 billion, and often because of the have-nots' labor.

So on that basis you are wrong. But also, tevhnology is rapidly making labor irrelevant, as more and more work is automated.

> Since by definition society requires centralization to direct its purpose.

Bitcoin is an example of a decentralized system with a common purpose. So is bittorrent. Or see any technology for distributing work or decision making.

Centralization in economics or politics leads to stagnation, authoritarianism, inequality. It is the primary problem that technology allows us to solve. Ordinary money was the first technology for solving over-centralization. We can do much better.

> If we lived in a bitcoin world it would be impossible for governments to mobilize itself to direct resources to solve social problems.

Thank god. Can't happen soon enough.

The problem is that it's not decentralized enough. Bitcoin is still scarcity economics when we are ready for abundance.

Blockchains won't be efficient at voting for the simple reason that full transparency enables vote buying.

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