Hopefully everyone has heard of blockchain by now, but if not you may want to read up on it.
Blockchain was originally created for Cryptocurrency back when Satoshi Nakamoto started up Bitcoin. Explained as briefly as possible, blockchain is
Picture a spreadsheet that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet and you have a basic understanding of the blockchain. Information held on a blockchain exists as a shared — and continually reconciled — database. This is a way of using the network that has obvious benefits. The blockchain database isn’t stored in any single location, meaning the records it keeps are truly public and easily verifiable. No centralized version of this information exists for a hacker to corrupt. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet.
"Wu-Tang, thats all well and dandy, but I am not a computer nerd, I am a big shot finance bro! Why do I care?"
However blockchain technology is being adopted by most financial service firms.
Most firms cite opportunities to reduce friction and costs. After all, most financial intermediaries themselves rely on a dizzying, complex, and costly array of intermediaries to run their own operations. Santander, a European bank, put the potential savings at $20 billion a year. Capgemini, a consultancy, estimates that consumers could save up to $16 billion in banking and insurance fees each year through blockchain-based applications.
Personally I think the system of blockchain is amazing, and will be a major disruptor in the finance industry. Several big firms are investing heavily, and could change the way financial services firms operate internally and externally. Do you guys think blockchain is here to stay? Why or why not? Has anyone done extensive research on blockchain? What opportunities can potential college students explore within blockchain and finance? The ledger that blockchain creates seems perfect for accounting purposes... are there any issues with using that instead of bookkeeping?
Sources to educate yourself on blockchain:
1) Blockchain influencing finance
2) Blockchain for beginners
Cheers lads,
"I grew up on the crime side, the NewYork Times side, staying alive was no jive"
Wu-Tang: Something not to mess with allegedly.
another good source: https://hbr.org/video/5582134272001/whiteboard-session-how-does-blockch…
I'm still a bit at a loss. I see the benefit of a private blockchain for internal bookkeeping, much like the cloud is more efficient than file cabinets, but I do not quite understand why this information ought to be public.
right now it seems like people are talking about it a lot like the underpants gnomes from south park, I cannot quite wrap my head around how it might be useful, specific examples that will save money, not just postulation "blockchain will revolutionize XYZ"
am I alone here?
I think the increase in transparency and trust is the larger focus through blockchain. Applications may spawn over the years, maybe blockchain is overhyped. We will see!
but see, that's a vague answer. increasing transparency and trust...in what?
I'm thinking if I'm a publicly traded company, and I have all of my transactions recorded on a public ledger, well that's awful from an investment standpoint, because it makes our investors more short term minded than they already are with quarterly earnings calls.
if I'm a customer of a bank, I don't want my transactions on the blockchain, it's my money and my business, why the fuck would I want that stuff to be transparent?
maybe I'm not getting this...I hate to write off a technology because I think that most new technologies with this much hype have some application, I just have a hard time with this one. someone please tell me where this will be useful, specifically.
that doesn't really answer the question. I understand how blockchain is is relevant if it's private, but what I'm having a hard time understanding is if/where the value is in public blockchains.
for private blockchains, the value is clear. if I don't have to maintain a database, well then there's tons of costs associated with that so that makes sense.
am I the only one that feels this way? it just seems like a different way to store data that's more efficient, but has limited use outside of the private realm (which I thought was the entire point)
The comparison I've always heard is comparing private company intranets with the internet. There are absolutely benefits to having a private system, but there are uses for the public system as well.
Some examples I've seen include moving title records for both houses and cars onto a public blockchain so it's easy to see and verify the chain of ownership for these assets. A few smaller governments are experimenting with creating digital identities on a blockchain.
The reason many of these blockchains are secure are the huge number of computers that power the network. If you have a private blockchain and someone was able to exploit 51% of the computers, which is probably a pretty small number compared to the global scale of ethereum, you could alter what the blockchain records. If you operate on a public blockchain it would be nearly impossible to control enough of the network to alter any records to your favor. Security features can allow you to transact on a public blockchain without disclosing that information to outside parties.
Does this address your question about the value of public blockchains?
thank you and dedline I get it now. DTCC is a great example. I imagine in the DTCC example it'd be somewhat of a hybrid between private and public, because while I might not want everyone knowing where I was sending shares of stock or moving my accounts from place to place, it'd be nice to take out the middleman and essentially have a system ensure that delivery occurred. or, if I'm a hedge fund moving shares from my prime broker to my custodian, I don't want the market to front run my trades, so there'd need to be some sort of pseudonymity there.
Let me clear up Public Blockchain Platforms vs Private Blockchains Platforms, as they are two entirely different use-cases.
Think of Public Blockchain Platforms (e.g. Ethereum, STRATIS, Lisk) as a massive, decentralized server where you pay for code execution. As a developer, you'd want to use this platform because there is no service-provider (e.g. AWS, MSFT, Google) that owns the platform, because nobody owns the platform. It's thousands and thousands of computers / servers that execute and maintain the state of your application that are all paid in the native asset (e.g. ETH) for doing so. The developer can create autonomous and deterministic applications, free of censorship that live for the lifetime of a blockchain (Ethereum will be around for 100's of years). If a Public Blockchain Platform enables "tokenization", it opens up the avenue for Decentralized Autonomous Organizations (DAOs), which open up entirely new business models based on the utility value of their native asset.
Some very interesting use-cases are decentralized file store (e.g. Storj, Sia) that allows you to store files, in a decentralized "cloud", without censorship or dependency on a service-provider. CIVIC is a company that is trying to decentralize identity. So instead of allowing Facebook to own your online identity and collect even more data in the process, CIVIC wants to be your decentralized identity, that only you own and you own your private data, when authenticating online.
Private Blockchain implementations (e.g. Consensys Enterprise, Hyperledger, Ethereum Enterprise) are primarily found in enterprise / industry. In Private Blockchain transaction networks, you're looking to create a trust-less environment to auto-adjudicate transactions in order to cut out costly intermediaries. You'll see a bunch of organizations that already do business together, that share a common costly intermediary and they'll be looking to cut them out of the transaction network. They'll usually form a consortium (e.g. R3), they'll work together to logically define what clauses need to be met in order for a transaction to be adjudicated, they'll re-define profit-pools on how transaction fees will be divied up amoungst network participants (now, without the intermediary), they'll agree on a consensus algorithm that makes sense (e.g. PBFT) and they'll instantiate the blockchain network between themselves while pointing all systems of record to send transactions to the blockchain network as opposed to the old intermediary.
Public Blockchain Networks = Massive, decentralized "server" + the advent of decentralized autonomous organizations.
Private Blockchain Networks = Displacing costly intermediaries in existing transaction networks.
When you think of blockchain, think disintermediation.
The novelty of blockchain is consensus algorithms. For Bitcoin, this algorithm is called "Proof of Work". These algorithms allow entities which participate in a business network (e.g. banks, healthcare payers / providers) to adjudicate transactions based on agreed upon, deterministic logic (i.e. code) in an autonomous environment.
Since we're on a finance forum, I'll use a banking example. DTCC is a clearing house for securities that are exchanged. They charge for their clearing house services, like providing post-trade services to make sure assets are exchanged from Registered Party A to Registered Party B.
Banks and Exchanges use DTCC because they'd like to because they'd like to off-load the post-trade work flows, the adjudication of transactions and the risk associated with owning this process. But what if Banks and Exchanges were fed up with DTCC's monopoly on clearing house fees, and they decided to set up a blockchain network to carry out all work-flows and adjudication that DTCC once did? They would take all processes required to clear securities from Registered Party A to Registered Party B, write them as "chain code", agree upon a consensus algorithm that ensures that business will be conducted in good faith and execute this decentralized transaction network where you would only pay for the I/O of transactions as opposed to what DTCC was charging you to be the trusted-middle man / clearing house.
DTCC saw this coming and they have partnered with IBM and a few start-ups as they prepare to cannibalize their existing transaction network, with a blockchain network that boasts increased: