Blockchains — Dreams and Reality

Dr Gideon Greenspan, CEO and Founder, Coin Sciences

If you work at the intersection of technology and finance, you’ll have heard of blockchains by now. In less than a year, this technology has migrated from the badlands of bitcoin to the boardrooms of the world’s largest financial institutions.

But what is a blockchain? In short, a blockchain enables a database (such as a financial ledger) to be directly shared between multiple entities, without requiring a central administrator. After agreeing on a set of rules, the database’s users can safely transact with each other on a peer-to-peer basis. It’s clever stuff.

In theory, blockchains promise a top-to-bottom overhaul of the world’s financial infrastructure. Say goodbye to centralized messaging systems, custodial banks and clearing houses. Instead, the participants in any marketplace can use a blockchain-powered ledger to manage their interactions, with automatic netting, settlement and reconciliation. And all this in a matter of seconds, with no risk of fraud or dispute.

So where does the dream hit reality? The trouble is, in a peer-to-peer database, every participant sees everything that goes on. Blockchains represent a trade-off in which disintermediation is gained at the cost of confidentiality. While many strategies are in development for mitigating this problem, none match the simplicity or efficiency of centralised databases, in which a trusted administrator has full control over who can see what.

So, after all the noise and hype, are blockchains dead in the water? Judging by the explosive interest in our own product, it does not appear so. Yes, the problem of confidentiality restricts the applicability of blockchains — you can forget about post-trade settlement in highly competitive capital markets. Instead, blockchains have several other important use cases, many of which are relevant to banks and finance. And as we’ve learned from our thousands of users, the strongest ones see transparency as a benefit rather than a problem to be solved.

Dr Greenspan is the founder and CEO of Coin Sciences Ltd, the company behind the popular MultiChain (www.multichain.com) blockchain platform.