Big Banks Are All Over Blockchain | Hacker News Reader

Big Banks Are All Over Blockchain

wolfstreet.com

62 pointsolivermarks57 comments

It's basically this kind of confused, bullshit reporting which gives false hope to the FOMO crowd or draws ire from bitcoin naysayers.

One, the confusing narrative around blockchain. Settlements don't require any kind of "proof of work" mechanism. It's basically a shared ledger where only permissioned parties can access/write. Some are calling it "Distributed Ledger".

Surely, someone is going to point out that "proof of work" is not the definition/requirement for blockchain. But, using it interchangeably and confusing the bank "blockchain" with the cryptocurrencies "blockchain" is causing the confusion and euphoria.

Second, settlements don't even need "coins". Cryptocurrencies use "coins" as an incentive mechanism. In PoW, you earn coins for securing the network. In PoS, you stake your coins to secure the network and earn fees.

But, if you have a permissioned, private blockchain there is no need of "coins" because there is no incentive structure. Will DBS earn extra coins for each transaction in the blockchain because of staking or something? If not, then these "coins" are just numbers to enumerate position sizes. In which case, why even call them "coins" and not "settlement amount in x currency"?

> some are calling it "Distributed Ledger"

Friend runs settlement infrastructure for a large bank. It's not sexy work. He has to fight for his budget. His TL; DR with a lot of this is it has made getting necessary infrastructure upgrade approvals easier.

Been needing to unify wire confirmations with some esoteric trade settlement system? Talk about Ripple. Adding real-time functionality to a net settlement system? It's a "distributed ledger". Boss gets a press release and maybe a glowing write-up, IT gets its kit.

This. McKinsey/BCG/others makes presentations to banks executive boards saying Distributed Ledgers are the future and you need to get onboard if you want to survive. Now every IT department head will try to do nonsense distributer ledger stuff for his promotion/bonus and business department heads will be OK because they don't want to be blamed for missed opportunities.

> because they don't want to be blamed for missed opportunities

It sounds more rational than that. Blockchain announcements make headlines. And blockchain headlines are driving stock prices [1]. There are numpties in the mix, but I don't think it's them.

[1] https://www.bloomberg.com/news/articles/2017-12-21/crypto-cr...

I completely understand. And this is a problem with other hyped up technology too.

One of my previous companies, we had people working on 'far reaching ML and AI stuff'. What they were actually doing was calculating euclidean distance between users to build a recommendation engine. Data size was around 100-150 items but every user had access to max 20 items. Questions about - Do we really need a complete recommendation system to select from 20 items? Fell on deaf years.

Great press for the manager and IT gets to show off something new.

The problem with this kind of cryptocurrency hype is that Average Joe is putting money into bitcoin because "I read DBS is using blockchain so bitcoin will go up".

Another phrase, perhaps along the lines of "probability of bet" would be a much better term than "proof of work" given that the reason the energetic commitment of work matters at all is that it represents a finite unit of value that someone, somewhere, allocated to a given blockchain in the form of risk. The amount of underlying value at risk is actually unknown because nobody knows what the cost basis was of the electricity used to "purchase" it. But using proof of work to describe the mechanism of committing a bet to a blockchain is rather like calling the ante in a card game "proof of chip toss". It's technically correct but it describes a relatively incidental aspect of the incentive construction process.

Tim Swanson: Enterprise Blockchain is in a "Trough of Disillusionment”

https://bitcoinmagazine.com/articles/tim-swanson-enterprise-...

Would a GIT repo work better than a blockchain for a large bank?

For what exactly? Banks used append only transaction tables with hashes to prevent row tampering/reorder ages ago.

On the contrary. They’re pouring money into developing their own “digital currencies,” as they call them. Just don’t call them “cryptocurrencies.”

Blockchain is to (some) cryptocurrencies as security paper is to paper money. Nobody calls your Passport "paper money", even if it is made of security paper just like your $10 bill.

Settlements could be executed almost instantaneously on a bank-by-bank basis rather than having to be netted at the end of each working day by the respective central bank

Guess the author isn't aware about how bank transfers happen around the world. Many places aren't locked in banking pre-history like the US. EU, Brazil, India, all have "almost instantaneously on a bank-by-bank basis" transfers.

But perhaps the biggest area of interest for commercial banks is in the field of customer and counterparty identification and verification.

This is where blockchain actually matters. All the currency stuff is BS.

I love this mass delusion that banks in the US have been seeking a technological solution for speeding up interbank transfers when the issue is bureaucratic.

Interbank transfers in my country take about 2 hours during business hours.

No sexy blockchain.

It's an interesting article, finally listing some specific use cases. But I'm curious - why now? What makes blockchain better than using other possibilities between each pair of banks? I don't expect bank A to care about transactions between banks B and C, so the distributed blockchain doesn't sound very useful. On the other hand, I expect banks to care about guaranteed atomic transactions rather than consensus.

(Transfers between many banks in the UK were instantaneous for a decade or so, so apparently it can be done without a blockchain ;-) )

All the transaction stuff is useless. Blockchain is actually really bad for that: it utilizes a centralized ledger.

Money today is completely decentralized. There is no central registry of where every single piece of money is, which has to be updated every time anyone makes a transaction. It flows and is converted to goods and vice versa in a completely decentralized and parallel way.

Remember: the ledger is completely centralized (there is a single, unique, monolithic ledger). Only processing of the ledger is distributed.

It is probably the worst possible way to design a currency.

This is untrue, where did you learn this?

What is untrue? That bitcoin has a single central ledger?

Duh, it does. If the ledger is processed in a distributed way across many peers doesn't change the fact that there is a single central ledger. If a transaction isn't in the ledger, it doesn't exist.

If I give you $10 and we don't tell anyone about it, do you still have the money? Yes.

If I give you BTC10 and we don't tell anyone about it, do you still have the BTC? No.

I believe you're thinking of the ledger as a distributed ledger and applying 'centralized' as a description, which it is not. Bitcoin is a decentralized ledger.

No, it is a centralized ledger (there is only one unique, central ledger that can't be partitioned) which is processed in a peer to peer way.

Compare this to actual currencies, that have millions (or even billions) of independent, parallel, distributed, ledgers.

Or compare this to DNS. There isn't a single, unique, central DNS record, it is a system of distributed records across he entire internet.

You would benefit from broadening your understanding of centralized and decentralized as it applies to the blockchain and ledgers.

If I give you a paper wallet or something like openDime? You now have BTC and nobody knows about it.

If you give someone a paper wallet, then both of you have access to it and both of you know about it. (You can't prove you don't have a copy) If you do it on opendime, then everyone with access to opendime know about it. (Potentially - depends how much you trust opendime)

Regarding OpenDime, I found these two relevant exerpts browsing the site, which were easy to find.

>How do I know the manufacturer doesn't know the private key?

>When you first plug in a new Opendime, it has no private key. It shows up as a writable drive and the user must copy files onto the drive. They are immediately forgotten, but the the file contents are hashed (SHA256). It's the hashed output of that which forms the private key (along with the unit serial number and entropy we derive from the environment). That happens as soon as 256k worth of bytes have been written to the drive. The private key is created and the drive "ejects itself" and comes back read-only and in "normal" mode... only the public key is shown until unsealed.

>Is the private key unique and secret?

>Yes. Opendime is delivered without any private key. You must give it entropy (random numbers) the first time you use it. Once it's gotten enough numbers, it will hash them all together and use that to pick a random number to use as the private key. At that point, the payment address is generated and set in stone.

>This whole process is very easy: just copy some files into the USB drive. When it's got enough bits (256k bytes) it will eject itself and come back with its final payment address.

Each bank/financial institution will probably have its own blockchain for its own purposes. But if they need to make a transaction to another bank's blockchain, they can use the Interledger protocol [1] to do so.

[1] https://interledger.org/

Here's the point though: if you want to do this, why not have a standard relational database at each bank and a standard for authorised endpoints in each paired bank? This tech was available for decades. Why interledger and blockchains to complicate it?

You wouldn't. You use a blockchain when you want one common ledger across multiple companies, and you don't want to pay/trust a single company to manage it.

Assuming you know who everyone is, you can use traditional consensus mechanisms like Byzantine Paxos and get much higher transaction rates than public blockchains can do right now.

You use a blockchain when you want one common ledger across multiple companies, and you don't want to pay/trust a single company to manage it.

Not really, you can have a blockchain managed by a single company. In the most basic definition, a blockchain is simple an authenticated linked sequence of records. It can be public or not, it can be processed centrally, distributed across a single organization, or distributed in a peer-to-peer fashion.

I guess so but usually people mean something that includes a distributed consensus algorithm.

With bitcoin, because the participants aren't identified and there isn't any form of traditional trust established between them, there are certain actors in the system that are paid a lot to manage the transactions/blockchain.

In your example of multiple companies coordinating on a single blockchain, who would be paid to manage it?

It's way cheaper than on Bitcoin because there's no PoW. Each participant would pay to run their own servers that connect to it.

Why would you want a consensus? In what financial situation would you expect the bank to say: this entity says the account has X, but those two entities say it has Y, so I'll accept Y?

That's not how blockchain consensus works. Once block number X is finalized, everyone sees the same data in block number X.

If a block isn't finalized, and you build a transaction based on particular conditions in that block, and the finalized block has different conditions, then your transaction just fails.

> everyone sees the same data in block number X

The same data in a specific block, but not everyone necessarily agrees that the same block is the latest one. That's why you don't have 100% confidence in a single block confirmation.

Exactly, what I mean by "finalized" is that everyone agrees and there's a very low probability that they'll change their minds.

And until it's not confirmed enough times, the number on your account can effectively change if enough parties agree. You seem to agree with what I wrote so far...

An optimistic answer would be that blockchains are highly scalable, trustworthy systems of record that provide a number of benefits over a traditional database.

A pessimistic answer would be that blockchains are the latest buzz tech.

I like that dichotomous approach, but are those two in balance?

What makes it more scalable than a database when a characteristic is a redundancy of copies beyond what would reasonably be needed for sufficient backup? What makes it anymore trustworthy than a database with only trusted actors authorized with write access?

The trustful, or verifiable aspects of a blockchain come as a side-effect of independent actors competing for a financial reward. How does one replicate that dynamic in a single organization? Why would one bother trying?

a number of benefits over a traditional database

A blockchain doesn't provide a number of benefits over a traditional database.

A database isn't even a particularly fine-grained description of a blockchain.

A blockchain is a key component of an experimental currency inspired by a particular political ideology that is at odds with many aspects of western civilization, such as the benefit of trust in a society.

It's not really useful insofar as most people can tell in any other contexts. Even it's usefulness in it's native context is not highly established.

Why would a bank switch to blockchain internally? What's wrong with the existing ledger?

When two banks transfer money, there's no concrete thing being moved or transmitted. It pretty much just involves bank B telling bank A "You hereby have $100k of my cash". So A needs some kind of global ledger to keep track of how much cash B actually has, and double check whether it's already told C, D, E that they have all of it.

There's no reason in principle a blockchain is better at solving this problem than a trusted central bank. But if the existing central bank is moving slowly or has annoying policies, it's much easier to bootstrap a blockchain than bootstrap a new trusted authority.

So A needs some kind of global ledger to keep track of how much cash B actually has, and double check whether it's already told C, D, E that they have all of it.

https://en.m.wikipedia.org/wiki/Nostro_and_vostro_accounts

This is a long solved problem. No blockchains necessary.

As an aside this is a problem I often see in fintech pitches...

"When two banks transfer money, there's no concrete thing being moved or transmitted. It pretty much just involves bank B telling bank A "You hereby have $100k of my cash". So A needs some kind of global ledger to keep track of how much cash B actually has, and double check whether it's already told C, D, E that they have all of it."

No, there's no global ledger, and it isn't required. There are checks and balances and regulations that allow money to work in a completely distributed way. Unlike cryptocurrencies that use a centralized ledger (all the 'major' ones, at least).

I don't expect bank A to care about transactions between banks B and C, so the distributed blockchain doesn't sound very useful.

Maybe for more efficient netting? If A owes B $100 and B owes C $100 and C owes A $100 then no money has to ever change hands, even in the sense of crediting or debiting accounts at the central bank.

I wonder how many of these banks think they're using blockchain, and put out press releases stating that, because the engineers have lied to management in order to get projects underway.

Matt Levine has been speculating on this a lot recently: banks traditionally have hugely underinvested in infrastructure upgrades. I imagine if you're in IT at a bank, it must be awfully tempting to go "blockchain! secret project!" to get management on board because the suits are all caught up in the hype. Then you can just immediately pivot to Apache Cassandra (which is strictly superior to blockchain in pretty much every proposed business use of blockchain I've ever seen) and no one's the wiser.

This is exactly what is happening. "Blockchainism," a vague and shifting set of shared assumptions about voluntary custodial risk/reward sharing, vs "a blockchain", a particular encoding of a particular subset of these ideas into a white paper and corresponding client software, according to a particular framing of incentives motivating the people who created it, which may differ greatly from those who invest in it or speculate on it.

Blockchain is on its way to becoming a hollowed-out incantation, like "green technology" or "democratic" or "brawndo"

Would you please share references to your stated Cassandra superiority over Blockchain? Thanks.

Cassandra is real world proven tech with many actual, observable implementations "in the wild."

What even is a "blockchain," not in the context of something like bitcoin? How does a blockchain even work within a single organization? However it may or may not work, the dynamics involved would seem to make it qualitatively different from something like a bitcoin blockchain.

So you're asking for a comparison between something that does exist and something that doesn't. And in fact something that can never exist, if we are going to stick to the convention of treating names as more or less unique identifiers of a certain set of characteristics.

Try querying a blockchain.

Block explorers work great. Is that what you mean?

I've been talking to some banking innovators, and they're not really sure what it is they're doing with Blockchain.

There's promise in the concept, but not in the current iteration. It's not suited for actual banking requirements at this time. Perhaps the successor will see actual adoption, and not purely marketing-jargon adoption.

Dear author..

"blockchain"... you keep using that word, I do not think it means what you think it means.

Exactly. This is the point I make when people start talking about how Ripple coin is going to revolutionize banking. Blockchain will definitely be useful for banking, but i’ve been able to come up with no reason to involve a cryptocurrency.

Edit: iPhone thumbs

Ripple coin can [potentially] provide single currency for banks operating across the globe, if it is able to get wider acceptance and ensure low volatility. I too have my doubts but this[1] post explains it well.

[1] https://medium.com/@AlexCarrithers/xrp-vs-ious-on-ripple-wha...

Except it doesn't give a single reason for banks to use ripple ( or any other crypto) at all.

Ugh, I know a guy who thinks Bitcoin > blockchain.

Although he is very smart, I really don't understand his reasoning

PSA: Any piece of news having "blockchain" in its title is bearish toward "Bitcoin".

they are just trying to make it like blockchain is not a big deal, hey we all have blockchain, saw it in an interview too.

Ripple can connect all the banks, blockchains, and currencies together.

Gasoline on the fire. What could possibly go wrong?

Reply on news.ycombinator.com