Considering Bitcoin is a blockchain based currency, and this is a blockchain based currency that isn't Bitcoin, it sure seems like a Bitcoin alternative to me. Perhaps you can elaborate on why you feel otherwise.
IMHO, the most important aspect of the bitcoin blockchain, is that it's a public ledger of all transactions, that anyone can use.
If this is just between 4 banks (which was my impression from reading the article), then it misses the point of bitcoin, and isn't really an alternative.
Bitcoin's core mission is enabling people to do payments. It's "consumer"-targeted, cash alternative.
USC looks like more of a settlement layer that could be used for more than just moving monetary amounts around. I think it will just end up being used as a more reliable contract agreement between banks, not that it won't be useful to them. It's pretty obvious that they need something like that, but in no way it's an alternative to Bitcoin.
A distributed ledger is only "decentralized" among the users of the ledger. We're talking about a consortium of banks making up both the developers and the users of this ledger. There is no mismatch in how "centralized" it is.
From that FT article: "The coins, each convertible into different currencies".
This suggests that they're using blockchain as a distributed ledger, and that the 'coins' are just fungible IOUs for existing government-backed fiat currencies.
So, it's a Bitcoin alternative in the sense that it can move money quickly. But they're not creating a new currency. They're just creating new paperless non-interest-bearing bearer bonds.
This new "USC" (utility settlement coin) is for inter-bank transactions only, not for the general public.
It apparently is backed by a blockchain as a distributed ledger.
Details are a bit sparse across the web, but apparently it is intended as a way for fast money transfer between and within central banks and regular banks.
The coins act as a proxy for 'real' money issued by central banks.
Yes, this is extremely misleading. If a few banks want to replace their current transaction settlements with a blockchain protocol tailored to their needs, that's great, I hope it works out for them.
Worrying that this blockchain isn't "open" or "democratic" like Bitcoin is just silly. It's like worrying about the fact the NYSE hasn't open sourced its internal code.
Bitcoin isn't exactly "democratic" also, the size of the blockchain the the difficulty of the mining pretty much means that anyone who wants to get into the business would have to invest huge sums of capital to get into the game.
The rest of us would have to use intermediate parties that would handle everything for us.
Right. I use my credit cards and simply trust Chase/Citi/etc to provide the services they've promised. I use a website to do Bitcoin transactions and simply trust they are not going to run away with my money. So there's even less of a justification to complain that this system is controlled only by powerful players.
Hmm, currently the block size seems still manageable to me (80GB). Also you can turn on pruning so you need to store only the amount you want, and you can still use all the major use cases.
You don't need to mine bitcoin to use it. It is still very cheap to use bitcoin still as an independent node. You can use those gateways to make your life a bit easier, but from cost perspective I think they are not needed.
These things are eventually going to exponentially increase, if Bitcoin gets to even 1% of the global payment cards daily transaction rate you aren't going to be running nodes on your own.
Now you can still get into running a node and even doing mining however as time passes the barrier to entry increases exponentially and considerably faster than the capacity of individual hardware so you can't even really catch up.
>These things are eventually going to exponentially increase
While bandwidth and storage costs exponentially decrease.
Handling the entirety of VISA's volume with bitcoin transactions would require at least a 4Mbit/s connection (about double for peak times). That's not exactly out of reach of normal consumers.
In that scenario the blockchain would grow bigger by 40Gb each day, or 15Tb per year. If you want to store that all, with current hard drive prices that would be $40 per month for new hard drives. Of course if you're not interested in looking up other people's random transactions, most of the data can be pruned as soon as the coins are spent elsewhere, giving you barely any blockchain size increase.
And all of those resources get cheaper all the time.
Resource requirements aren't a fundamental problem for bitcoin. The block size that limits it to ~0.3% of VISA's volume, and the mining system that favours a near-monopoly for the person with the lowest operating costs are far bigger problems.
"If Bitcoin gets to even 1% of the global payment cards daily"
Visa alone processes between 2000 and 10000 transactions a second.
Bitcoin is architected to handle 7 transactions per second. From my understanding this limitation can not be overcome by adding more miners, it is by design.
As an aside, I think people use intermediate parties unnecessarily way too much with bitcoin.
Yes, mining it yourself is not feasible so you do need one to get ahold of bitcoin and to get fiat currency back from bitcoin, but you don't need (and maybe shouldn't use) one just for storing bitcoin, paying with bitcoin, receiving bitcoin. That's the whole damned point of bitcoin, but then people go and store it with mtgox anyway even though they're not about to exchange it, and are bummed out when mtgox loses their money. It sucks, but it's funny that half the point of bitcoin is making this situation impossible, if you bother to do it right
(Of course, if you trust a third party more than you trust your own ability to not lose/forget your private key, then I guess it makes sense, but you're trading a lot off in exchange for that)
You don't need to use an intermediate party to use bitcoin. You can submit transactions directly to the network from your wallet software without running a miner. The miners secure the network, but the nature of the system is that they are trustless, so long as %51 of them are honest. By having the cost of mining being high, that makes the cost of an attack on the network high. Which aligns the miners incentives (Eg: keep the price of bitcoins from going to zero as it would if the network were compromised) aligned with yours.
The blockchain is a bit large at 80GB but you don't need to download the whole blockchain to run a wallet and make transactions there are "light wallets" that will do this, and currently in testing is an even more efficient method of doing this called segregated witness.
This doesn't exactly act like a proxy currency (there would be legal issues with that).
Banks are really interested in using blockchain like technologies for settlement and clearinghouse related tasks, it would allow them to have near real time settlements without much effort and could both reduce their liability and costs.
Both concurrent and correspondent banking has pretty big liabilities banks have to keep standing accounts with funds to facilitate, these funds are pretty expensive for the banks to keep since they both do not earn any interest and they are not fractional.
Banks are also tied to fairly expensive transfer schemes (ACH/FSP) and service providers like SWIFT because a lot of the fast transfer schemes have limited membership (there are only 10 clearing members in the FSP for example) most banks end up paying pretty large transfer fees for agency banks that perform the transactions for them.
Having the ability to set up blockchains that could easily be extended which would provide both the messaging/transfer functionality and the ledger that can be used for account settlement and consolidation between banks, as well as being extensible enough to allow multiple banks to join in either to the main blockchain or to sub-chain makes all the sense for them.
Banks however would not and for the most could not use "digital currencies" for their day to day dealings, the only currency they are allowed to "create" is their respective national currency.
If bank start creating their own currencies it is very likely to conflict with the fractional lending model used by virtually all modern banking systems.
I take free banking like historically practiced in Canada, Scotland or Australia as the model here---they dealt very will with fractional reserves. I don't see how introduction of other currencies would be a problem? Please explain.
I think there have been similar things in practice for a while. The real difference here is just the open blockchain to simplify accounting. Even though there are probably lots of little details that are different, this seems really similar to things like XDRs:
Wiring money is exactly what they are trying to do. The point is that banks use independent ledgers that have no guarantee of consistency and in some cases dependent of manual synchronization.
Sounds more like a digital currency than a blockchain currency. When this is just between a few banks, which inherently trust each other, there's no need to build a sophisticated P2P blockchain for a job that can be done with a couple of SQL tables.
Err.... no, banks definitely do not "inherently trust each other." Not when the incentive to misrepresent your position is so high. They use very expensive record keeping and clearinghouse arrangements (often involving quite a lot of physical paper) that in theory could be cheaper to do with a distributed ledger.
> They use very expensive record keeping and clearinghouse arrangements (often involving quite a lot of physical paper) that in theory could be cheaper to do with a distributed ledger.
Do you have some quantifiable facts or sources to back this up?
If I'm going to repeat it I want to be certain of it.
Here is a report by Santander with a rough estimate of $15-20 billion in savings per year by switching from conventional records to distributed ledgers. Scroll to the end of the pdf.
If blockchains can reduce the non-fractional funds that banks have to fully reserve and keep at other various banks to facilitate and settle transfers by even a few % the savings might be even higher, especially once you actually start getting ROI on that money that you can invest now.
That's not even taking into account the ransom banks pay for correspondent / agency banking and for SWIFT and the likes.
As well as the cost of liability of invalid/bad transfers, and banks oddly enough still "lose" money all the time, some of it is later recovered but virtually every time banks do account consolidation the books don't add up.
Yes, there's no 100% trust of course, but the banks, merchants and general population trust other banks more than they would trust some random entities or bitcoin exchanges for example.
There are of course reasons for that, the major ones being the shared (and regulated) clearing system you're referring to (which I'm assuming this "bitcoin alternative" is aiming to replace) and then there's the fact that these are accredited financial institutions with reasonable controls in place to keep them honest.
In a hypothetical scenario where credit card authorization succeeds (meaning that the issuing bank is guaranteeing the funds to the merchant), merchant ships the goods but the funds don't make it to their account on the merchant bank side because the issuing bank "misrepresented the position" - if the issuing bank gets caught doing this they'll be in all sorts of trouble.
It's not that just about having an inherent distrust of one another. When they do have a dispute, it is necessary to have very good documentation to bring to court. Legally doing a mediocre job with keeping records is barely better than not keeping records at all. So they end up spending a lot to mind their p's and q's, even though they do have a good amount of trust.
With a blockchain it becomes cheap to add a layer of ex-post verifiable mutual agreement between mostly-trusted parties.
I'm all for a blockchain (or ripple or whatever) type solution replacing today's antiquated setup.
My point however is that I highly doubt that it's the trust issues between financial institutions that is the primary driving force behind this implementation.
I don't think so, otherwise you wouldn't have a central (and State-run) clearing house like today. The blockchain, as a signed distributed database, is still useful. What you can do away is with the whole mining thing, since unlike in the semi-anonymous world of Bitcoin, if a bank were to start double-spending, it would easily be identified by the other banks and the authorities.
> What you can do away is with the whole mining thing
You could have a "proof of stake" algorithm to power this proposed private blockchain, with the four originating banks (for example) given 25% "mining" power. The stakes could be readjusted when new banks come in, or existing ones leave.
What makes Bitcoin and other currencies expensive to run is that they run on "proof of work" algorithms, which are far more energy intensive, requiring huge amounts of electricity and specialised hardware. With proof of stake, you just need to show that you own a certain stake in the overall network, which is not energy expensive and quite feasible on a private blockchain.
A big part of the recent financial crisis was the fact that after Lehman went bust the money market, which is extremely critical for overnight or very short term financing between banks and multinational companies, essentially froze up completely.
There was a real risk that solvent, multinationals (think Pfizer, or Nestle) would actually go bust because of liquidity issues, which could not be covered for a very short term.
The main reason was that banks didn't trust each other at all and interbank lending, without collateral, essentially went into a coma.
Bitcoin isn't in direct competition with the financial industry in any meaningful way. It's basically just another currency like all the others in the world. The financial industry doesn't suffer from servicing new currencies. Bitcoin is more in competition to fiat money, since it is not issued by any government and is extremely hard to control or track.
But even if it's not in competition,the ideas behind Bitcoin are very useful for making banking more efficient and cost effective.
I'm reminded of the US currency situation prior to 1863, when any bank could print its own money and you needed to figure exchange rates on every transaction.
The status of 'unlimited legal tender' which the USD enjoys today is a major factor in the growth of the US economy.
Isn't this just a shared ledger to encourage more trust, with the other banks all keeping a copy so that if UBS say they settled with Santander but there's disagreement then they can ask the others to verify?
It was plagued by being ahead of its time, having technology in search of a use case, having predatory and venal business folks (and I like most biz folks!), a high burn rate, development split across two locations (long before this was a solved problem), issues with corporate culture, dysfunctional technical management that saw testing as a problem to be routed around, etc.
Hope this newest spin on the idea has better success.
(It would be hard not to - Certco was a perfect storm. That said, some great people worked there, and after a certain point I was a dysfunctional employee with a bad attitude myself. )
The devil is in the details. Banks have been talking about "permissioned blockchains" for awhile, and whether this is really a bitcoin alternative, or just using the blockchain as a jumpstart for interbank transaction software remains to be seen. (The article is very light on details.)
If it is a bitcoin alternative then it will be distributed and tustless. Those are some of bitcoins key innovations. Being distributed means that no central authority can rewrite history by changing balances. Being trustless means that the system keeps accurate records even if participants are compromised (assuming less than %51 are compromised.)
Banks are unlikely to want to give up that level of control and probably will make it centralized (eg: a few banks run the miners) and trusted (eg: only authorized transactions and probably they will put in a way to rewrite history.)
Which means, if those assumptions are true, this isn't an alternative to bitcoin, but simply banks jumping on the blockchain hype to create a centralized system of fast settlement.
62 comments
[ 2.5 ms ] story [ 117 ms ] threadIt's just a blockchain based currency.
If this is just between 4 banks (which was my impression from reading the article), then it misses the point of bitcoin, and isn't really an alternative.
USC looks like more of a settlement layer that could be used for more than just moving monetary amounts around. I think it will just end up being used as a more reliable contract agreement between banks, not that it won't be useful to them. It's pretty obvious that they need something like that, but in no way it's an alternative to Bitcoin.
Ouch.
From that FT article: "The coins, each convertible into different currencies".
This suggests that they're using blockchain as a distributed ledger, and that the 'coins' are just fungible IOUs for existing government-backed fiat currencies.
So, it's a Bitcoin alternative in the sense that it can move money quickly. But they're not creating a new currency. They're just creating new paperless non-interest-bearing bearer bonds.
1) The 'coin' will not be the unit of account. The underlying currency (e.g. US$) will be the unit of account.
2) If the underlying currency (e.g. US$) ceased to exist, the 'coin' would have zero value.
Consider how the above two points compare with:
A) Bitcoin (which I say _is_ a currency)
B) Zero-coupon government bonds (which I say are _not_ currency)
This new "USC" (utility settlement coin) is for inter-bank transactions only, not for the general public.
It apparently is backed by a blockchain as a distributed ledger.
Details are a bit sparse across the web, but apparently it is intended as a way for fast money transfer between and within central banks and regular banks.
The coins act as a proxy for 'real' money issued by central banks.
Worrying that this blockchain isn't "open" or "democratic" like Bitcoin is just silly. It's like worrying about the fact the NYSE hasn't open sourced its internal code.
The rest of us would have to use intermediate parties that would handle everything for us.
You don't need to mine bitcoin to use it. It is still very cheap to use bitcoin still as an independent node. You can use those gateways to make your life a bit easier, but from cost perspective I think they are not needed.
Now you can still get into running a node and even doing mining however as time passes the barrier to entry increases exponentially and considerably faster than the capacity of individual hardware so you can't even really catch up.
While bandwidth and storage costs exponentially decrease.
Handling the entirety of VISA's volume with bitcoin transactions would require at least a 4Mbit/s connection (about double for peak times). That's not exactly out of reach of normal consumers.
In that scenario the blockchain would grow bigger by 40Gb each day, or 15Tb per year. If you want to store that all, with current hard drive prices that would be $40 per month for new hard drives. Of course if you're not interested in looking up other people's random transactions, most of the data can be pruned as soon as the coins are spent elsewhere, giving you barely any blockchain size increase.
And all of those resources get cheaper all the time.
Resource requirements aren't a fundamental problem for bitcoin. The block size that limits it to ~0.3% of VISA's volume, and the mining system that favours a near-monopoly for the person with the lowest operating costs are far bigger problems.
Visa alone processes between 2000 and 10000 transactions a second.
Bitcoin is architected to handle 7 transactions per second. From my understanding this limitation can not be overcome by adding more miners, it is by design.
Yes, mining it yourself is not feasible so you do need one to get ahold of bitcoin and to get fiat currency back from bitcoin, but you don't need (and maybe shouldn't use) one just for storing bitcoin, paying with bitcoin, receiving bitcoin. That's the whole damned point of bitcoin, but then people go and store it with mtgox anyway even though they're not about to exchange it, and are bummed out when mtgox loses their money. It sucks, but it's funny that half the point of bitcoin is making this situation impossible, if you bother to do it right
(Of course, if you trust a third party more than you trust your own ability to not lose/forget your private key, then I guess it makes sense, but you're trading a lot off in exchange for that)
The blockchain is a bit large at 80GB but you don't need to download the whole blockchain to run a wallet and make transactions there are "light wallets" that will do this, and currently in testing is an even more efficient method of doing this called segregated witness.
Banks are really interested in using blockchain like technologies for settlement and clearinghouse related tasks, it would allow them to have near real time settlements without much effort and could both reduce their liability and costs. Both concurrent and correspondent banking has pretty big liabilities banks have to keep standing accounts with funds to facilitate, these funds are pretty expensive for the banks to keep since they both do not earn any interest and they are not fractional.
Banks are also tied to fairly expensive transfer schemes (ACH/FSP) and service providers like SWIFT because a lot of the fast transfer schemes have limited membership (there are only 10 clearing members in the FSP for example) most banks end up paying pretty large transfer fees for agency banks that perform the transactions for them.
Having the ability to set up blockchains that could easily be extended which would provide both the messaging/transfer functionality and the ledger that can be used for account settlement and consolidation between banks, as well as being extensible enough to allow multiple banks to join in either to the main blockchain or to sub-chain makes all the sense for them.
Banks however would not and for the most could not use "digital currencies" for their day to day dealings, the only currency they are allowed to "create" is their respective national currency.
Which jurisdictions are you talking about here?
I take free banking like historically practiced in Canada, Scotland or Australia as the model here---they dealt very will with fractional reserves. I don't see how introduction of other currencies would be a problem? Please explain.
[0] http://laws-lois.justice.gc.ca/eng/acts/C-52/page-1.html
http://www.alt-m.org/2015/08/08/thats-right-famously-sound-f...
I am not quite sure where it forbids alternative currencies, as long as you don't call them money?
https://en.m.wikipedia.org/wiki/Special_drawing_rights
Do you have some quantifiable facts or sources to back this up?
If I'm going to repeat it I want to be certain of it.
http://santanderinnoventures.com/fintech2/
That's not even taking into account the ransom banks pay for correspondent / agency banking and for SWIFT and the likes.
As well as the cost of liability of invalid/bad transfers, and banks oddly enough still "lose" money all the time, some of it is later recovered but virtually every time banks do account consolidation the books don't add up.
There are of course reasons for that, the major ones being the shared (and regulated) clearing system you're referring to (which I'm assuming this "bitcoin alternative" is aiming to replace) and then there's the fact that these are accredited financial institutions with reasonable controls in place to keep them honest.
In a hypothetical scenario where credit card authorization succeeds (meaning that the issuing bank is guaranteeing the funds to the merchant), merchant ships the goods but the funds don't make it to their account on the merchant bank side because the issuing bank "misrepresented the position" - if the issuing bank gets caught doing this they'll be in all sorts of trouble.
With a blockchain it becomes cheap to add a layer of ex-post verifiable mutual agreement between mostly-trusted parties.
My point however is that I highly doubt that it's the trust issues between financial institutions that is the primary driving force behind this implementation.
You could have a "proof of stake" algorithm to power this proposed private blockchain, with the four originating banks (for example) given 25% "mining" power. The stakes could be readjusted when new banks come in, or existing ones leave.
What makes Bitcoin and other currencies expensive to run is that they run on "proof of work" algorithms, which are far more energy intensive, requiring huge amounts of electricity and specialised hardware. With proof of stake, you just need to show that you own a certain stake in the overall network, which is not energy expensive and quite feasible on a private blockchain.
Not really...
I posted this before here on HN:
https://media.licdn.com/mpr/mpr/shrinknp_800_800/AAEAAQAAAAA...
There was a real risk that solvent, multinationals (think Pfizer, or Nestle) would actually go bust because of liquidity issues, which could not be covered for a very short term.
The main reason was that banks didn't trust each other at all and interbank lending, without collateral, essentially went into a coma.
But even if it's not in competition,the ideas behind Bitcoin are very useful for making banking more efficient and cost effective.
The status of 'unlimited legal tender' which the USD enjoys today is a major factor in the growth of the US economy.
Back in 1994 I worked at startup created by a consortium of banks that was intended to deliver tools for intra-bank settlement, B2C, etc.
https://en.wikipedia.org/wiki/Certco_(financial_services)
It was plagued by being ahead of its time, having technology in search of a use case, having predatory and venal business folks (and I like most biz folks!), a high burn rate, development split across two locations (long before this was a solved problem), issues with corporate culture, dysfunctional technical management that saw testing as a problem to be routed around, etc.
Hope this newest spin on the idea has better success.
(It would be hard not to - Certco was a perfect storm. That said, some great people worked there, and after a certain point I was a dysfunctional employee with a bad attitude myself. )
https://clearmatics.workable.com/
The proof of concept is already there.
If it is a bitcoin alternative then it will be distributed and tustless. Those are some of bitcoins key innovations. Being distributed means that no central authority can rewrite history by changing balances. Being trustless means that the system keeps accurate records even if participants are compromised (assuming less than %51 are compromised.)
Banks are unlikely to want to give up that level of control and probably will make it centralized (eg: a few banks run the miners) and trusted (eg: only authorized transactions and probably they will put in a way to rewrite history.)
Which means, if those assumptions are true, this isn't an alternative to bitcoin, but simply banks jumping on the blockchain hype to create a centralized system of fast settlement.