I must say, I tend to agree with Andy Haldane on the wisdom of crowds. These are crowds which, in the UK at least, are wrong about almost everything*. There is no hope, to be honest, unless the robots take over pretty sharpish. But that’s by the by. Andy is once again on the money (literally – he’s the executive director, monetary analysis & statistics at the Bank of England) commenting on the public’s opinion on matters of high finance:
The public should not have a direct say in setting interest rates because they can show ‘madness’ when making collective decisions – just look at Boaty McBoatface, the Bank of England’s chief economist has warned.
Now, as a general rule, I don’t think that the general public should have a direct say in anything at all, including who should run the country. More evidence for the triumph of shameless populism over the reasoned arguments of actual experts came at the recent CityChain17 event in London:
It was Gideon Greenspan CEO CoinSciences and brains behind MultiChain that for me stole the show, although Dave Birch at Consult Hyperion was the audience’s favourite.
As I said, it’s important not to listen to the wisdom of crowds. Had I paid to go to the event, it would have been to listen to Gideon, not me. His excellent presentation on the difference between a blockchain and database, and the niches that the former ought to fill, stole the show for me and illustrated clearly why MultiChain is growing in the corporate market.
The point of my presentation, on the other hand, wasn’t to discuss which particular shared ledger architecture was best or which particular kind of blockchain implementation of a shared ledger architecture might be most appropriate in different circumstances, but to draw on Consult Hyperion’s practical experiences advising clients in the financial sector to ask where the biggest impact of shared ledger technologies might be.
I used the example of supply chain applications in my talk because it was something that I happened to write about a few days ago, and made the point that shared ledger technologies make more sense as a regtech rather than as a fintech. Since these technologies are about sharing information between companies, and between companies and regulators, it seems to me that they will be more effective at reducing the aggregate costs of a market than the private costs of individual stakeholders.
How, though, can we create a new kind of market where competitors can share sensitive information, yet keep it confidential? The idea of translucent transactions is key to all of this. Companies trading with each other may not want the details of those trades to be public, but the public may want to know that those trades are legal. Hence, we need to find a way to audit information that remains hidden from us. This is an idea I first heard expressed a couple of decades ago by one of the cypherpunk founding fathers, Eric Hughes:
I had the pleasant experience of having dinner with Nicholas Negroponte, John Barlow and Eric Hughes, author of the cypherpunk manifesto, at a seminar in Palm Springs. This was in, I think, 1995. I can remember Eric talking about ‘encrypted open books’, a topic that now seems fantastically prescient.
Eric’s ideas date back to 1993. A decade on, Nick Szabo was inspired by these ideas to write about confidential auditing, which in turn inspired my colleagues and I to explore ideas of ambient accountability a decade later. Now in the 1990s and 2000s, techniques such as homomorphic encryption and zero-knowledge proofs may have seemed for the lab only, but shared ledgers need these technologies and can exploit them to create new ways to solve old problems. And the business case is there, too. For all the talk of the blockchain being instant and free (it isn’t), the ability to send money across the internet as quickly and as cheaply as, say, M-Pesa doesn’t create anything like the cost-benefit disruption as the ability to reduce compliance costs does.
Regtech has been supplying some of the best use cases in banking. From the early customer engagement stages like KYC and identity, to compliance management, risk and reporting, the potential to reduce costs and create new customer engagement opportunities is tremendous for regtech. Banks are also actively looking for solutions to better interfaces with regulators.
This idea makes sense to me much more than using a blockchain for (for example) payments. The idea of a shared ledger that allows the FCA to continually monitor a bank’s books to see that it is solvent without being able to see the private information of creditors or debtors is very, very appealing. And it doesn’t shoehorn this fascinating new technology into emulating existing structures, but allows us instead to create new and more efficient markets.
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– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Image by Chief Crow Daria, Shutterstock.com