This week’s news that German online bank Fidor is incorporating Ripple Labs’ blockchain into its operations is, without question, the most significant development in the cryptocurrency space this year.**
Though a relative newcomer to Bitcoin, I was into smart contracts before they were cool, and saw this possibility coming a little while back. As I pointed out in Tim Swanson’s book Great Chain of Numbers:
“Corporates and financial institutions have high overheads for personnel and equipment. They automate their operations when they can. The idea of replacing complex server architecture with a distributed blockchain – if indeed such a thing can be done – seems to me to be a rather simpler and more elegant solution for a bank to manage its balance sheet than legions of employees. A blockchain is basically the world’s most transparent and accurate accounting product. It’s only a matter of time before proprietary blockchains crop up internally at financial institutions, governments and businesses where they will start serving that function. Consequently, the resources saved – currently used to pay salaries of financial services professionals – will be redeployed into lending operations and the economy at large.”
When made, that statement was pure conjecture. I never expected a regulated entity to adopt cryptoledger technology so quickly, and am even more surprised that a European bank – not an American one – is the first-mover. But noting that I’ve caught hell from crypto purists for making that suggestion, it’s great to call something right every once in a while. So I’ve got that going for me, which is nice.
The reason for my ultimately incorrect assessment as to timing is that in my interactions with developers to date I’ve found that the more ardently a person supports cryptocurrency, the more likely it is that he or she will be highly reticent to accept centralisation of any kind, as can be seen by reviewing some of the more common criticisms of the Ripple platform (criticisms with which, I should add, I do not agree).
The consequence of this, I observed in GCON, is that
…one particular problem stands in the way of integrating cryptoledgers with repayment prioritization: what [Preston] calls “[anti-] trusted third party dogmatism.” In his words, “there is a disconnect between the banks who mediate transactions in the real economy and the cryptocurrency which seeks to supplant them. This is counterproductive; the technology is open-source and can benefit everyone, including the banks. But the gulf, until bridged, will act as a serious hindrance to development.”
Consider it bridged. This is no bad thing. Neither specific instances of less than full decentralisation, nor protocol choice, is a zero-sum game for the industry as a whole.*** The instant case demonstrates that Bitcoin is not the only commercially viable protocol, and experimentation with blockchains (technically “consensus ledgers” in Ripple’s case) by early corporate adopters such as Fidor will (1) work out the practical commercial issues involved in deploying decentralised/polycentric smart contract platforms in more mainstream banking applications and (2) spur Fidor’s competitors to do the same.
Considering that a number of major international banks (which shall remain nameless) have announced swingeing staffing cuts in the past two weeks alone in order to reduce their overheads, I suspect we might be surprised by the pace at which mainstream corporate adoption takes place.
Suffice it to say, if you’ve got a business issue that means you need to speak to someone who understands law, commerce and cryptoledgers, my firm and I can help. Feel free to drop a line and we can have a chat.
**For clarity: I do not have any financial interest in Ripple Labs nor do I hold any XRP (the base unit of the Ripple network.) Also, it appears someone agrees with me – whoop!
*** To suggest that decentralised computing will be threatened by the existence and evolution of multiple protocols is absurd – it’s like saying that ARPANET was threatened by the development of the many functions of the Internet. Which ultimately it was. The great thing about cryptoprotocols, however, is that they can evolve and change, and be easily tailored to specific applications – so the more the merrier, I say.