Banking Payments

Blockchain? It’s complicated

Blockchain? It's complicated. Photo: Unsplash CC0 Public Domain
Written by Chris Skinner

Scratching the surface of understanding blockchain just won’t do, say Chris Skinner, who reveals his favorite blockchain use case infographics.

FSC meeting. Photo by Chris SkinnerWe had a great debate at the Financial Services Club last night between digital money sage Dave Birch of Consult Hyperion, and all-things-bitcoin master Jon Matonis. The debate was about whether blockchain is faster and cheaper, and it was clear from the start that this was going to be difficult because the question Dave raised was, faster and cheaper than what?

I’ll talk more about the debate in further posts, but to begin with, it’s clear there are raging arguments taking place in the corridors of banks about this technology. For me, it appears that the arguments are about blockchain because it has become as numb a word as cloud and big data. Blockchain, cloud and big data mean little, and are just amorphous buckets to throw lots of things into. When you look under the hood of the bucket terminology, you find lots of interesting things, but the arguments in banks are about the bucket itself.

‘We need to be in the bucket,’ says the bank’s CIO.

‘What’s in the bucket?’ says the bank’s CEO.

‘The next generation of banking tech,’ says the CIO.

‘Oh, in which case, here’s a few squillion bucks to make sure we are part of the next generation of banking,’ says the CEO.

Neither of these people know, nor have a clue, what blockchain is. They just know they need to be in it.

Dilbert cartoon about blockchain. Image: Chris Skinner

Then the CIO goes back to the tech offices and digs out the coolest-looking guy in the office under the age of 35.

‘Hey, you’re a millennial,’ he says.

‘I am,’ says the cool guy.

‘Find out what this bucket stuff is all about. You’ve got the job.’ CIO walks away and cool guy goes, ‘WTF?’

A month or two later, cool guy comes back to CIO and says, ‘I’ve discovered that there are over 10,000 use cases for this bucket stuff, and a thousand startup companies are developing proofs of concept.’

‘Look,’ says CIO, ‘I don’t need to know the detail. Just make sure we’re working with the right ones.’

Cool guy goes away and starts building his knowledge bank, contacts and network in the hot, new space of the bucket world. Soon, he’s the go-to guy for everyone and has become The Guru. Yet, it’s purely because no one could be bothered looking under the hood of the bucket, or in this case blockchain, and discovering what’s really going on. When you do look under the hood, it’s pretty complicated. You have public blockchain systems and private blockchain systems. You have permissioned and permissionless systems. You have shared, distributed, federated ledgers and the bitcoin blockchain. For most bank leaders, this is like learning a foreign language, and for most bank leaders, they don’t have the learning ability to keep up.

So if you’re a banker reading this and have no idea what’s under the hood, here are three of my favourite infographics about blockchain that I think show what’s going on really well. The first shows the general use cases for blockchain …

Beyond Bitcoin: general uses for blockchain

The second drills down into more specific financial use cases

Non-financial use cases infographic.

And then this third one (my favorite, from First Partner), showing the intricate detail of what’s happening in banking and finance with blockchain (download zip file).

Payment use cases, by First Partner

This shows how complicated, but also exciting, shared ledger developments are, and the fact that there are so many firms building on this technology demonstrates there’s something serious happening here.

My takeaway is that blockchain and shared ledgers are using interchangeably, but they’re not the same. Blockchain is usually associated with bitcoin, whereas shared ledgers are a different possibility for private ledger developments. Equally, cryptocurrency and digital currency are used interchangeably, but they’re also not the same. A cryptocurrency is often a pseudo currency like bitcoin, while a digital currency could be euros or dollars on a private, shared ledger.

What this demonstrates is that high-level scratching the surface of blockchain ledgers won’t do. However, for those who do want to talk high level, just remember that blockchain doesn’t necessarily mean bitcoin or technology per se, but it’s about the granularity of use cases that apply to all aspects of finance and governance. As Dee Hock, founder of Visa, says: “It’s not just about the future of finance, but the future of governance.”

Remember that you can delegate the research and activities in this space, but if you’re not intimate with the applications and benefits, you may as well be dealing with weapons of mass destruction without knowing that it’s your finger on the button.

READ NEXT: 12 standout startups focused on blockchain identity

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Photo: Unsplash CC0 Public Domain

About the author

Chris Skinner

Chris Skinner is an independent commentator on the financial markets through the Finanser, and chair of the European networking forum the Financial Services Club, which he founded in 2004. He is an author of numerous books covering everything from European regulations in banking through to the credit crisis, to the future of banking.

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