In 2008, the same year Lehman Brothers went bankrupt and the financial world melted down, a new technology called blockchain entered the scene. It would soon become the biggest buzzword of the decade, with entire conferences devoted to it, hundreds of papers written about it, and thousands seeking to make their mark as blockchain ‘experts.’ Blockchain will revolutionise finance, we were told. The old guard will be swept out the door and a new era of efficiency, speed and transparency will be ushered in. Get ready, and quickly, or you’ll be left behind!
And then… crickets. In the 14 years since then, blockchain has remained a buzzword, and little more, for traditional finance. While startups using the technology abound, and some big corporates have used it to effect transactions here and there, the promised revolution has resoundingly failed to turn up.
Why?
No safety in big numbers
High-profile exchange and network hacks, most recently seeing $600 million stolen from the Ronin Network. According to analytics firm Chainalysis, $14 billion in crypto ended up in illicit wallets in 2021 alone. And while no one can deny that hacks, scams and theft in the fiat and tradfi worlds are likely much larger, it’s understandable that traditional firms are reluctant to open up to additional layers of risk.
However, there is an answer. Forking – when two branches of a blockchain part ways – is the single largest source of risk and entryway for malfeasant actors to a blockchain environment. Solve forking, and much of the risk of illicit activity goes away. Redbelly blockchain has spent several years creating the only guaranteed fork-proof environment – see founder Vincent Gramoli’s recent blog for how he achieved this.
Stings and the police
Firms in the blockchain space have been advocating for increased regulatory oversight for years, and while some regulators are starting to move, the pace of change is very slow. One difficulty for regulators is the nature of the blockchain world, which, based upon the original ethos of bitcoin inventor Satoshi Nakamoto, prizes anonymity – Satoshi him/herself of course embodying this by remaining anonymous to this day.
But blockchains don’t have to be this way, just because that’s the way it’s always been done. Redbelly has been designed to facilitate transactions between known, verified participants, with the accountability of licensed markets built in. Everyone in the Redbelly ecosystem is known and accountable to their counterparts – no other open blockchain offers this.
The secret gardens
This lack of accountability is why blockchain has really only taken hold in tradfi so far as ‘walled garden’ private and consortium chains. The most famous example is Ripple, which showed massive initial promise but fell from grace when the nature of its cryptocurrency was called into question.
Today, some institutions use blockchains for specific tasks, such as HSBC and Wells Fargo, who use blockchain for FX settlement; and JP Morgan’s Liink network that enables payment information transfer between banks. While these are good use cases for blockchain, their proprietary nature means they lack the transparency and data benefits that end users should expect from a transition to a blockchain environment. And their restricted nodes and opaque nature mean that security may not be as robust as it could be.
Digital dollars, crypto cents
CBDCs have been the subject of much discussion for a decade or more. While the Central Bank of the Bahamas was first off the rank with their digital, blockchain-based ‘Sand Dollar’ in 2020, China is the focal point of CBDC attention, with pilots of its digital yuan, or e-CNY, well advanced; an app launched for users in 23 cities in April of this year; and WeChat poised to roll it out to over a billion users. However, it’s important to note that while it’s an significant proof of concept, the e-CNY is not based on a blockchain.
In a 2020 survey by the Bank of International Settlements (BIS) 80% of respondents said they were working on a CBDC, and 88% of those suggested blockchain would underpin that work. A blockchain like Redbelly that provides legally enforceable, regulated consumer protections like traditional markets, while also being open, faster, and more efficient than other blockchains, could be the answer to speeding up this kind of work.
Quietly sleeping giants
While blockchain has yet to realise most of its potential, it’s clear that whoever cracks the code and creates a blockchain that offers tradfi institutions the features that blockchains have lacked to date, will be well positioned to participate in a genuine revolution. And perhaps that revolution doesn’t need to be all that disruptive anyway. Perhaps blockchain will in the end simply grow to offer consumers new ways to transact, pay for and engage with their economic needs, with each new iteration showing up as an improved service or a new product. Perhaps this quiet revolution is the way blockchain will change the world – not with a bang, but with an inexorable infiltration that gradually makes life better and fairer for everyone.
