Blockchain Began in a London Tavern
By David Parsons, Blockchain Economist, and Antony Abell, CEO of Universal TrustMe Engine Limited
London, United Kingdom.
Agree or not, there is a perfectly valid argument that goes something like this: blockchain originated in an 18th-century London tavern. Sounds like a joke, but might we add, this form of “blockchain” has served the United Kingdom very well this past nearly-quarter millenium. In fact, you might already even know how this story goes…
Today, most of us would imagine that the distributed ledger technology, blockchain, along with its most famous use case, the cryptocurrency Bitcoin, are modern inventions — yet nothing could be further from the truth.
Digging into London’s rich history of financial innovation, we encounter evidence that the first instance of a “blockchain instrument” being manually implemented occurred in the city’s very first cheque clearing house: a room inside of a tavern called The Five Bells, which was located on Lombard street. The year was 1770 and the world of finance was about to be changed forever.
A brief history of London’s first cheque clearing house.
So where did blockchain first enter the picture? The best starting point is to take a look at what were the monetary needs of 18th-century United Kingdom. Commerce in this period was conducted using physical coins; gold, silver and copper pieces (read: “real”, physical money) were still presented at this time for the settlement of all transactions. With a real estate transaction, for example, the buyer and the owner/seller would exchange bags of coin to complete the transaction and execute the transfer of property.
And the same occurred for all other types of transactions, with a multitude of coins being used to purchase and sell all different kinds of goods. However, there was one glaring flaw to this otherwise straightforward process: the limited availability of physical money to conduct said transactions. If the quantity of physical coins was insufficient, then commerce would be severely restricted as would be overall economic growth.
To make matters worse, the shortage of coins in the UK was exacerbated by those hoarding gold and silver in an effort to preserve their wealth. This practice was especially prevalent during times of economic hardship, and gave rise to the colloquialism “hide the gold and silver”, as official and unofficial interests alike sought to seize reserves of the coinage. As the English economy began to boom with the industrial revolution starting from the mid-1700s and onward, solutions to the coin shortage, and hoarding problem, had to be diligently investigated by the Crown and private banks.
Necessity as the mother of “blockchain” invention.
The innovation that would go on to solve the problem of limited coinage was none other than paper cheques drawn against private banks. See, we told you that you already knew this story.
As cheques became more commonly used among London banks (with each institution honouring the others’ cheques), an informal system of tallying and auditing each banking cheque drawn emerged. This practice was first observed in the cosy tavern room on Lombard street, where a sort of “chain” process was designed to execute the task. There, all cheque transactions were verified and tallied at the end of each day. Banks would settle net positions (debits and credits) among themselves using real money, e.g., gold and silver coins.
This system negated the need to obtain, hold and move vast sums of gold and silver in order to settle debts between banks; only enough was needed to provide end-of-day settlement between all the parties involved in the transaction. Applying today’s blockchain technology terms, this tallying mechanism was the equivalent of “mining the block of transactions” and “proof of work”.
What this system provided was liquidity to all London banks and thus the realm over. Moreover, it provided a significant, global, and competitive advantage to the nation, thus helping to fuel the progress of its industrial revolution. Cheques could be issued and accepted as payment for business transactions even when the gold or silver that was meant to be behind the transaction was not physically available. This gave the UK a significant advantage over the economically floundering colonies as well as France, where paper money had been banned.
It could be argued that this monetary invention was almost as important as the invention of Mr. Watt’s steam engine in 1776. Both innovations, at least, were equally effective in accelerating the journey between two points; essential for a world eager to move faster and with greater efficiency.
Why it is time for London to lead the way again for the Blockchain Financial Revolution
The trusted system of an asset exchange created in 1770 between UK banks has provided 250 years of unprecedented economic growth — not only for the United Kingdom but the global economic system as well. It is imperative now that the London financial sector apply the tried, tested and hard-won lessons of the past to the latest in internet technology in order to safely expand these asset exchange systems far beyond what the current banks and financial institutions are capable of. Now is the time to enter a whole new, broader class of customers, thus paving the way for the next 250 years of prosperity.
To learn more about TrustMe’s role in the upcoming monetary revolution, you can request to read our white paper here.