The Banks and the Blockchain

The year 2015 has certainly become the year when major banks finally faced the fact that innovations cannot be overcome, and that the old system is in decline.

However, as I mentioned earlier in another article, the enthusiasm of the community regarding the corporate world’s warm embrace of the blockchain is at least premature.

At the first glance, the situation does look very pleasant. Visa Europe stated that implementing blockchain is not a matter of choice any longer. The world’s biggest bank form a consortium to research the opportunities of cryptotechnologies. Tunisia integrates blockchain into its own government-backed digital payment system. Even the Russian government, known for its almost paranoid attitude to anything new, admitted using the blockchain technology. There are much more news like those to recall from 2015.

However, many feel skeptical about those events.

For instance, Overstock CEO Patrick Byrne, who enjoys good reputation in cryptocurrency space due to his commonly acknowledged “open-mindedness”, stated that R3, the interbank consortium established for deeper research of the blockchain, is but a complex intrigue arranged by those who in fact wish to suppress the true innovations.

“There are members of R3 who want to use R3 as a mechanism to slow us down while they come up with their solution – ‘us’ meaning this whole [Bitcoin] community,” he said.

His words interestingly echo with some of the most recent statements made from the other side.

“The current blockchain is a great design pattern. Now, how do we make that real for business? What are the key attributes needed to make that happen? That’s what this organization is about,” says Jerry Cuomo, vice president and chief technology officer of IBM’s software group.

The organization in question is a consortium consisting of Cisco, Wells Fargo, London Stock Exchange Group, JP Morgan, Intel, Fujitsu, SWIFT, and IBM under the auspices of Linux Foundation. What the consortium does, is trying to develop an alternative to the blockchain.

Meanwhile, SWIFT, the international communications platform for international banking, announced a possible “roadmap” that might include the blockchain technology. As for now, they speak of improving the correspondent banking area. According to the statement, the organization expects the amendments to become effective as of early 2016.

This, in its turn, echoes with statements from Sberbank of Russia, the country’s biggest state-owned public bank. Due to sanctions imposed on Russia in the wake of the Ukrainian crisis, the financial authorities sought to avoid possible disconnection from SWIFT – and for that purpose, they suggested implementing blockchain in its stead. Implementation of the blockchain could indeed allow the bank to abandon SWIFT.

“The blockchain, however, is applicable for internal settlements, and transactions between our subsidiaries and other banks. It has nothing to do with cryptocirrencies, it is just another method of settlement, which is simplier, faster, and more secure,” Leo Khasis, executive chairman at Sberbank, said.

“When the sanctions were only dawning, Russian banks were afraid of possible disconnection from SWIFT. Implementation of the blockchain technology increases a bank’s reliability and stability releasing it from political risks like that, as bloclchain is a distributed system without a sole manager who could disconnect a bank therefrom,” says Kirill Kibalko, former deputy executive for IT at Home Credit Bank.

Blockchain technology could in fact be a part of a somewhat bigger and complex game. All those consortiums, researches, and implementations could lead to establishment of a brand new, yet old-fashioned, financial system. Just like a weapon, which may both save and take lives, the blockchain, while initially designed for a decentralized future, may become the cornerstone of a totally centralized system.

By Jenny Aysgarth