Among Plumbers and Punters in the Blockchain World, We are the Plumbers
October 15, 2019
A few weeks back, just after attending ABS East, one of the biggest gatherings of the structured finance industry, I did a LinkedIN post titled Making Blockchain Boring. I talked about a panel on Digital Securities where John Mizzi of Bond.One talked of ‘payment processing and record keeping solution for debt instruments’ as their offering while Marcus Austin of Citi added ‘so much data moving around so if you can prove provenance of data across all parties, that is what we are looking at’. Since this was a gathering of financial institutions, some bias towards a more prosaic approach was understandable but still a change from a year back was clearly discernible.
Couple of weeks after my post, I found another reference to ‘boring blockchain’ in a blog about Hyperledger’s Burrow. Suddenly, from claiming to achieve world peace through blockchain, talking of blockchain being boring seems to be becoming fashionable!
Since Intain launched its platform for Structured Finance, one standard feature of pitch has been a stress on an evolutionary approach.
But in many conferences, we had to feel defensive about our approach. I must acknowledge that, at times, we had self-doubt. Is our mindset, programmed because of the financial services business and technology background of leadership team, making us too conservative? I attended a Binance conference in Singapore and I felt I had landed on another planet as no one talked my language and I didn’t understand the language that was being spoken.
Initially, even financial institutions tried to put the business model ahead of the technology hence consortiums and marketplaces in areas like trade finance were among the earliest use cases. So many of these were based on Ethereum. But with number of forks (in the blockchain and among the founders) and Vitalik Buterin’s own pitch about Ethereum 2.0 , we now know that these consortiums were built on a very nascent technology. Recently, an opinion piece in FT talked about how many projects started with the technology rather than the solution.
A distributed ledger so that no reconciliation is needed across transacting parties and an immutable audit trail itself makes the blockchain technology priceless for financial institutions. Yes, it brings up the DLT vs Blockchain debate but it is immaterial as long as a problem is solved using a technology innovation. Billions of dollars have been spent by institutions on achieving ‘single source of truth’ with little success. Look at every desk with dual monitors on an operations floor — it is being used to either match data between two systems or enter data from one system into another. Having spent many years managing financial services operations, I would estimate number of people just doing reconciliations in some form across the industry to be upwards of a million. It is not only the cost of ‘recons’ but the fact that reconciled data makes automation of all the subsequent steps in the workflow much simpler.
In our platform for Structured Finance, where we use blockchain as information rails (the ‘boring blockchain’ or DLT, if you wish), the zero recon and immutable audit trail enables both efficiency and transparency. Combined with cutting edge reporting and data visualization tools, it ensures real-time information on-demand for all stakeholders. Suddenly, with use of blockchain, both process automation and data visualization tools becomes so much more powerful. Starting with the problem and building and enterprise grade software solution using of technology stack of blockchain is a critical part. Blockchain as the start of the thought process looking for a use case, to use a cliché, is a hammer looking for a nail.
I believe that the philosophy (border-less world, no central authority), economics (tokens, no inter-mediation) and technology (immutability, distributed ledger) will not converge in every use case and, possibly in none, in the early stages. Since we, the proponents of the blockchain technology, always draw parallels with the internet, good to remember that ‘protocol-internet-book seller-seller of multiple goods-marketplace’ was an evolution and the protocol and the marketplace didn’t happen together.
So here’s to the boring blockhain!
(I had written this more than a year back, but as focus on Bitcoin investing and related startups takes center stage, it is worth remembering that there is a technology underlying this which has many less fancy, but as impactful use cases)