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The blockchain won’t make you (or your counterparty) a better person

The blockchain won't make you (or your counterparty) a better person. Main photo: lassedesignen/Apoint,
Written by Leda Glyptis

Leda Glyptis breaks down the intricacies of trust when it comes to blockchain, and says your associates are no more trustworthy than before.

If I had a penny for every time I’ve been asked “What is the blockchain after all?”, I would have a fistful. But if I had a penny for every time I wasn’t asked “What is the blockchain?” by people who then proceeded to (attempt to) have a conversation with me about what it can and can’t do, should and shouldn’t be, I would be retiring to a private island around about now.

What happens is that people who first learn about “the blockchain” focus on specific aspects of the distributed ledger technology where they believe (or read somewhere) that it could become “disruptive”, or perhaps more accurately, where they are feeling a higher level of discomfort and uncertainty. A clear pattern emerges around what they’re pondering.

On trust

Without fail, the main issue these folks home in on, endlessly and fruitlessly, is trust: How do I trust the network? Why would I trust you? What happens to my KYC if I use a distributed ledger?

Even more so after the recent ‘Ethereum Heist’ that’s bringing out the extent to which folks in this small, yet overpopulated space are talking at cross purposes: the detractors see it as proof that the blockchain is not to be trusted, those selling build-your-own-private-blockchain kits see it as proof that “the other way” will never work. Ethereum themselves remaining stubbornly defiant, with Gavin Wood tweeting on 19 June:

So once and for all, let’s put this one to rest. The blockchain will not make you or others (including your professional associates) more trustworthy than you already are. It will not make your transactions or exchanges more legitimate. It will just make them more transparent; it will not sanitise your intent, just your record-keeping.

It could eliminate the need for certain activities specifically managing the fact that you don’t trust your associates not to run off with the assets: letters of credit and agency arrangements, elaborate collateral management processes and escrow agreements, tri-party repo and correspondent banking. All that could go. Again, not because now you trust people to hold on to both sides of an exchange for an indeterminate period of time without running off with the goods, but because the technology allows you to not worry about that.

You don’t need to manage trust, because you no longer need to trust as far as some steps of the process are concerned. Your associates are no more trustworthy than before, which may have been a lot, but you didn’t take any chances. This technology allows you to take no chances without needing a whole host of activity to manage the absence of trust for certain parts of the process. It assumes that needing to trust someone is a stress factor that we could all do without, so it seeks to minimise the need to trust for those parts. And those parts alone.

It makes business easier by managing the “not trusting” process, not by making you more worthy of this trust.

On smart contracts

At a conference recently, I was asked about smart contracts rather insistently. At first I thought my discussion of layers of hardened, tamper-proof data and time-triggered executables was a bit too ‘mad scientist’ for my audience, but I soon realised they understood the idea of software locking-in and channelling information in a transparent, distributed way to trigger actions that had a predetermined dependency on how some of that aforementioned data behaved. Payment received, security issued, shipment acknowledged – you name it.

So what was the issue? The issue, as it transpired, was how do smart contracts ‘bake in’ assurances that individuals will not willingly and intentionally violate their intent.

So here we are. The blockchain will not make you a better person. If you’re hell-bent on cheating, and apply yourself to the task, you will find a way. Again, look at Ethereum for proof that it’s not a silver bullet to remove any inherent human traits.

It will make your exchanges faster and safer. It will make your processes slicker and your infrastructure leaner. It will make mechanisms of asset, value and information exchange flatter, and banks much less profitable than they once were. All this is good news for some, mixed news for others and utter heartbreak for some others. No matter where you fall, however, one thing applies to us all: this won’t make us better people. Those who want to cheat will keep trying.

On recourse and reconciliation

Smart contracts embed triggers for execution of provisions into the processing of whatever the contract refers to, and as they mature, we will see some very neat applications in everyday life, with smart cars and smart appliances, smart homes and connected infrastructures.

The manual “let me see … oh yes, you have indeed paid for your rental car, here is your key, off you go” will happen automatically. If you tell your mechanic that you didn’t ignore your service notification for three weeks, he will know you’re lying, and you will probably have to forfeit the free service because you would have violated your side of the bargain. But you could still go to court and claim that the beeping was faint, the dashboard light easily taken for something else. You can appeal. You have recourse, as does your mechanic.

The technology isn’t there to silence you, nor to improve your ethical standards. It’s there to speed up processing and rewire the human experience. It will be a little harder to blatantly ignore contractual arrangements, but let’s not fool ourselves: people will not stop trying. Plus, the smart contract is as smart as you make it. Some have blamed the Ethereum Affair on poorly constructed contracts. Well then.

Closer to home, the idea that transactions or issuance “done on the blockchain” do not require reconciliation causes ripples of malaise – “What if I make a mistake?”.

If you make a mistake, you then call your counterparty or client, or send them a message on the blockchain, or send a smoke signal, or whatever other medium of information exchange you settle on and say “Oops!”. If you input erroneous data into your ledger (and before we go down that rabbit hole, it’s possible to add layers of verification before you commit an entry to the ledger, so fat fingers can be accounted for), there’s a process for fixing the error. It entails admitting an error and may entail a legal route if the other party says “Tough”, but there is a process.

What’s no longer there is the magic undo button that banks became used to. Reversing transactions and recalling trades. No harm done, no public evidence of the error. Nothing to see here, until something goes terribly wrong.

How about this version of the world: we should all be careful at work. We should all be forgiving of the human propensity to err. And if we err, and the other side doesn’t play nice, then the entire process is transparent and easier for a court of law to decide that “A was clumsy, but B is being malicious. Bad B”.

The blockchain won’t make B nice. That was a job for B’s parents. But at least we will have the whole thing on an immutable record.

On cleaning up your house

“There are things we don’t want on record.” Another precious gem.

The nuances of client confidentiality, market-sensitive data and proprietary information aren’t lost on me or anyone else. We have wrapped our heads around notions far more complex than these, yet nothing exploded. At its core, B2B banking is a space of big deals and even bigger ledgers. Record-keeping and report production are the main output of the value chain. And the blockchain comes into the midst of this and says, “Chain, yes. Value? Not so much,” and reduces complex activity and associated profitability to plumbing.

This is uncomfortable, yet simple. The technology behind it, however, comes with a certain degree of complexity.

People seem hell-bent on understanding this technology in a way they never sought to understand any technology before. And this is commendable and moving us closer to a time when the CEO and CTO will not be two people. Closer, but not close, because in attempting to understand this, what folks uncover is the depth of their ignorance around how their current systems work. They are trying to understand calculus having slept through arithmetic. You can learn, but learning takes patience and effort. There are no shortcuts.

And questions about trust and the vagrancies of human nature are deflectors, really, away from the discomfort of “What will I do for a living in this brave new world?”.

To understand what to do with the blockchain other than experiment with it in snazzy laboratories, we need to get uncomfortably close to how we deliver value today (bits and bytes and mainframes) and what value our client extracts for the furtherance of their business. This is business sense. This is client-centric thinking. This isn’t technology, but without a doubt it leads to better tech.

On transparency and client-centricity

In getting closer to how you do what you do and what your client really gets out of it, a whole host of business-enhancing side effects will be realised. You will become better at fulfilling client needs. You will better understand what your systems do, what their endemic limitations are, where the weaknesses are and how to fix them.

As your clients and your regulators are increasingly demanding access to existing services via APIs, you will be forced to create robustness in your existing infrastructure, sanitise your data, reduce manual intervention, increase repeatability and reduce error and reliance on manual reconciliation post facto.

You will also start paying extra attention to how you recruit and manage your developers, because in this API world, they become the single biggest group impacting your P&L.

As you are trying to understand your existing technology to better figure out what to do with the blockchain, you are simultaneously and grudgingly getting your house ‘API ready’: better systems, enhanced transparency, higher client advocacy and, in conjunction, a better working environment for your developers.

You may have just become a better person after all.

READ NEXT: 5 major use cases for financial blockchains

Main photo: lassedesignen/Apoint,

About the author

Leda Glyptis

Leda Glyptis is a lapsed academic and long-term resident of the banking ecosystem, inhabiting both startups and banks over the years. She leads, writes on, lives and breathes transformation and digital disruption. She is a roaming banker and all-weather geek. All opinions her own. You can't have them.

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