How Blockchain Will Improve Existing Banks

blockchain bank

What are examples of how blockchain technology could improve existing bank services?

Luke Parker, CEO, Phoenix Pro Studios, answers the question on Quora:

Ledgers are the lifeblood of all banks, even central banks and the swift & SEPA networks. There is no better ledger on planet earth than bitcoin’s blockchain, nor is there ever likely to be again. It’s quite obvious that they would be interested in it to some extent.

At the time of this writing, May 2015, many banks, including the Bank of England, Goldman Sachs, JP Morgan, UBS and others have either made some blockchain-related investments already or at least talked well about integrating blockhain technology into their business one day. More than one Federal Reserve director has publically spoken on the benefits of blockchain technology.

These people all seem to be under the impression that they can make “their own” blockchain and keep it secure, for the assumed purpose of having a better ledger system to run their banking network on.

They are mistaken.

Making a blockchain is trivial now; I’ve made one myself in fact… But the value in it comes from the security, and that is something that bitcoin will always be far, far, FAR better than their blockchain for.

The mining network bitcoin enjoys, which exists only because the miners are mining a token of value (bitcoins) that incentivize them to keep mining, is now ~24 Billion times faster at doing it’s specific job than the most powerful supercomputer available today. (The Aurora, which isn’t even complete yet and costs hundreds of millions of dollars.)

If a banking system, say, JP Morgan Chase, were to make it’s own blockchain and try to secure it, they would need to mine their own altcoin from a closed network of miners.

There are two approaches it could take to do so:

1. Put a full client & miner at each branch.

2. Put all miners in one room with armed guards and a huge firewall, only allowing coins to flow to each branch like they are using web wallets.

Doing the former leaves each branch location open to hackers; and it would only take 1 hack to 51% their entire blockchain with trivial amounts of leftover bitcoin mining hardware.

Doing the latter seems safe but puts way too much power at a single keyboard or power switch… A single bad disgruntled employee can move a trillion dollars or destroy the whole system on a whim… It goes in stark contrast to everything that makes a decentralized ledger awesome, and such centralized power makes the entire effort so untrustworthy that stockholders will doubt that it isn’t being fiddled with… As history would agree with their doubts.

In short, the only way banks are going to be using blockchain technology in the future is when they give in to start holding Bitcoins.

I’m all for that! They’ll have to buy so many of them that a single bitcoin in my possession will be worth many millions of USD today.

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