Writing on CIO Journal, a Wall Street Journal blog for corporate technology executives, Owen Jelf and Sigrid Seibold , respectively global managing director of Accenture’s capital markets practice and managing director of Accenture’s digital capital markets efforts, weigh in on the fashionable debate about the blockchain as a system vs. bitcoin as a currency.
Not surprisingly, the two Accenture writers propose to do without bitcoin as a currency, but they are bullish about the potential of the blockchain in financial markets.
“Blockchains present an enormous opportunity for the world’s banks and financial institutions, which have moved quickly to make investments in it,” they say.
Accenture, a Fortune Global 500 company, is the world’s largest consulting firm as measured by revenues and has scores of high profile clients in the banking, financial and regulatory sectors.
“The bitcoin protocol supports a highly decentralized currency validated through anonymous consensus on a public ledger held by entities around the world,” note the Accenture representatives. “But that objective introduced trade-offs, including a costly proof-of-work algorithm, public transaction data and a validation scheme that adds latency to the transaction process, by design.”
Bitcoin enthusiasts would disagree, and argue that the distributed anonymous consensus model used in the Bitcoin blockchain is not a bug, but a feature – and a breakthrough innovation. In fact, the Bitcoin blockchain represents the first solid, working implementation of distributed consensus – for the first time, everyone can agree on what transactions took place, and who owns what, because everything is recorded on a tamper-proof public ledger that doesn’t need a central server and can’t be controlled by any central authority.
Of course, that is precisely the reason why the authorities and the banks don’t like Bitcoin. Today, governments and financial institutions recognize that the blockchain technology behind Bitcoin can offer huge cost savings, efficiency, and operational benefits to financial systems – distributed ledger technology could save banks $15 billion-$20 billion per annum by 2022 according to a recent Santander Innoventures report – but it’s in the nature of power to oppose what it can’t control.
The two Accenture representatives offer their solution: “To be used by financial institutions, including capital markets firms and insurers, blockchains must supplant the costly methods introduced by bitcoin with a mechanism that guarantees security, privacy and speed without paying for anonymous consensus.”
In other words, Bitcoin should disappear and be replaced by a closed blockchain. The new blockchain proposed by the Accenture writers is not “permissionless” like the Bitcoin blockchain, where everyone can download the software and participate without asking anyone’s permission, but a “permissioned” blockchain restricted to vetted participants.
New York Times technology and finance reporter Nathaniel Popper, author of “Digital Gold: Bitcoin and the Inside Story of the Misfits and Millionaires Trying to Reinvent Money,” noted that a permissioned blockchain could be jointly run by the computers of the largest banks and serve as the backbone for a new, instant payment system without a single point of failure. The new blockchain, decentralized but closed, would offer the benefits of the current Bitcoin network without relying on end-users for its operations.
Of course, the governments and the banks tend to enthusiastically support the idea of a permissioned blockchain without the troublesome bitcoin. But the Bitcoin system works, and the features that the Accenture writers propose to eliminate could be the very features that make it work. Other solutions to the issues mentioned by the Accenture writers, for example Lightning Networks, could be more effective.