Regulators, banks and private blockchain consortiums aren’t particularly enthused about a public blockchain or distributed ledger providing the platform for banking or financial services, going by the common sentiment at an industry conference in London today. While they don’t want to go the way of bitcoin and other decentralized cryptocurrencies, the threat of the ‘uberification’ of financial industry still looms, making some insiders anxious.
It’s still a waiting game for regulators who are yet to determine if fintech startups are innovating with open methodologies or a vetted model with limited users. The waiting game continues, before the regulators figure out the ways in which new innovations can or, according to them, should be policed.
The banking industry, specifically, is keen to avoid the situation where the taxi and the hotel industry now finds itself, following the advent of Uber and Airbnb respectively. These thoughts were shared amongst private banking firms, a central bank and private blockchain firms today, at a conference organized by the Bank of England and the London Business School.
As reported by Reuters, Bank of England (BoE) Chief Cashier, Victoria Cleland stated:
We need to understand what the [fintech industry’s] model is. With all these [innovations such as digital currencies, blockchain etc.] going on, we need to respond to what would regulation mean.
While Cleland revealed that the BoE is still weighing the potential risks and benefits of digital currencies like bitcoin, blockchain and other innovations, the banks and regulators are unanimous in their disapproval of a publicly accessible distributed ledger.
Chief technology officer at HSBC, Andrew Weir points to the threat against banks’ cybersecurity if the industry chose an open public platform — like the bitcoin blockchain – compared to a closed, private distributed edger.
“If the distributed ledger is a platform that gets incorporated into the Internet in some way, it will be completely open to these forms of hacking,” Weir reportedly said according to the publication.
The sentiment against a public blockchain is commonly shared by banks and regulators alike, according to Charley Cooper, managing director of private blockchain firm R3. A New York-based blockchain startup, R3 leads a private banking consortium looking into distributed ledger solutions for the current banking industry with 42 of the world’s biggest banks having signed up for the consortium.
In a clear dismissal of public blockchain solutions for the banking industry, Cooper revealed that R3 had invited regulators to view the firm’s private solutions catering to banks and stated:
I don’t know if there is any regulator in the world that is anywhere near close to accepting the idea of a public distributed ledger for financial services.
However, this opinion isn’t one shared by Paul Chou, bitcoin advisor to the United States Commodities and Futures Trading Commission (CFTC) and CEO of LedgerX. Chou and other advocates of bitcoin and the bitcoin blockchain — the biggest public distributed ledger around — contend that without the incentive to support a wide network, blockchain technology will lose its effectiveness and with it, all the promise that private banks are currently clamoring for.
Featured image from Shutterstock.
Last modified: May 21, 2020 10:32 AM UTC