Wall Street Firms Plan to Move Trillions into Blockchains in 2018

The financial industry appears to be adopting the blockchain technology. This is the same technology that many fans had hoped will destroy the current finance industry. Whenever blockchains first came out almost a decade ago, they were literally tech backbone for Bitcoin, the biggest cryptocurrency on the planet. They appeared to offer people the means to eliminate the middleman of finance. However, now it is looking like all these big banks as well as other big industry players are looking for ways to use this new gadget to their own advantage.

Original Purpose of Blockchains

These blockchains are now sharing a vision that is exactly the opposite of the original one that was put out in the initial Bitcoin white paper. This was originally published using the pseudonym Satoshi Nakamoto in the year 2009. Like Nakamoto stated, anyone can own bitcoins and they do not even have to state their real name, and anyone can review the histories of virtually any transaction. However, the finance industry’s blockchains are closed, and in order to join one, you have to reveal your true identity to at least a system administrator – and they have to first approve your application.

Financial firms are telling us that permissioned networks are the by far the best way to pacify regulators and also to protect the privacy of clients, but diehard purists keep arguing that by trying to maintain a grip on sensitive information is removing the purpose of blockchains in the first place. And this also threatens to cause even new problems for both clients and the companies. 

Big Financial Giants Checking Out Blockchains

During the past couple of years, financial giants like BNY Mellon, ING, Goldman Sachs, UBS, and Santander have been exploring lots of various blockchain projects, and some of them have been subsequently moving past the proof of concept phase. As it stands, one of the very first which will be released in the actual world is coming from a not widely known financial company who mediates around $11 trillion annually for a certain class of equities.

If everything goes as planned, then a much larger chunk of this quadrillion dollar financial securities market, as well as much of the admin tasks that are typically done by brokerages and banks, could very well be operating on a corporate blockchain sooner than later.

Nakamoto’s initial paper outlined a peer to peer finance network that has no intermediaries for collecting fees, botching a transfer, or even triggering a dreaded economic meltdown. Transactions were to be signed using a digital key and to be written in a public ledger—which would serve to be the master for each and every account—stored and maintained on lots of different computers. A setup like this would ensure that transaction histories would not be modified or altered.

However, the facts are that the very first crypto exchanges as well as digital wallets had all kinds of vulnerabilities. And those public blockchains proved to be very difficult for scaling up as needed. Then in the year 2016, there was a very high profile $60 million heist at the DAO, which was the autonomous investment fund which was running on smart contracts that had been placed on top of Ethereum. Ethereum is currently the public ether blockchain and is a cryptocurrency that is a rival of bitcoin. In the end, all funds were indeed recovered, but it served as a very painful reminder how blockchains are still the product of humans in the end, who will inevitably make always make some kind of error in code.