Video Of The Week: Private vs Public Blockchains
This is episode 6 of Trust Disrupted, which I blogged about earlier this week. It features many of my arguments in favor of public blockchains and also plenty of the counter arguments.
I have no idea why I am holding my head at such a crazy angle in much of this. It hurts just to watch it 🙂
Comments (Archived):
Wrt open, as I commented on ‘Trading R&D’ post …”If we’re talking about the democratization of digital currency and data, it’s somewhat exclusionary that the design processes of Bitcoin and Blockchain hasn’t included non-technical folks from the start in the thinking frameworks.”This would have delivered the “killer consumer apps” to validate the idea BEFORE the Bitcoin-Blockchain movement went toe-to-toe with the Clearing & Settlements & Risk Management core of banking.————–I qualify that given my hands-on experiences as a banker whose team put together most of the interbank consortia platforms in the industry, e.g.* http://www.mtsmarkets.com
lefthead (logical, analytical, objective).
Except it’s the right head that Bitcoin-Blockchain-Ethereum experiment needs.Whether they and we like it or not, banking rules exist and they’re not necessarily reducible to some code — for similar reasons to why the machines can’t yet be moral authorities like the Supreme Court.It’s a mistake to believe banking is just about one form or other of STP and quant dashboards.https://uploads.disquscdn.c…
“They have civil and criminal penalties”-all you need to know about why you cannot skirt the rules when it comes to finance. If the SEC and CFTC don’t get you, FINRA or something else might.
Exactly. I wrote the documents for the bank’s investment in the industry’s de facto Compliance platform:* http://www.rdc.comIn fact, I secured us one of the 4 available board seats at the time.The colleague I shared a corner office with is now CEO of LSE’s Turquoise platform and I drafted a slide that was the definitive guide of the Electronic Communications Networks (ECNs) in the industry at the time.That’s why “LEARN THE RULES LIKE A PRO” before anyone thinks they can break them like an artist.
The other thing is that I don’t think the “killer app” should focus on financial services. I see Blockchain technology solving the retail sector’s $1.5 TRILLION inventory distortion problem.There’s a piece of IoT that needs to be invented first, though.I’d happily work with a team to invent it — except I’m focussed on the bigger and harder problem of data and machine intelligence.
Interesting, I have heard R3 isn’t doing so well-is this true?One thing that finance has kept sacred in the switch from human to electronic markets is tiered distribution models. They do it so they preserve their edge-or ability to make pennies off providing a service (those pennies add up to billions). In some cases, electronic markets allowed the institutions to create new tiers of distribution that didn’t exist before.Where can the blockchain be used to disintermediate tiers of distribution similar to what we saw ecommerce do with retail?One massive market that might be interesting to think about is the trillions of dollars transacted in the OTC derivatives market. There isn’t a classic central party clearinghouse like a regulated exchange model. There is counter party risk, and reputation risk. Players in this market have to engage in due diligence to make sure the other party can perform. Can blockchain become the unit of trust and sweep away the existing system?People aren’t ready to make the leap yet. But, in time it may come.
I was speaking with someone from R3 last November and he observed that a lot of it was like “reinventing the wheel”.The deal-makers who put together the consortia platforms in previous cycles seem to have moved on to other roles and outside of the banks, so there are those missing chains of knowhow on how to structure interbank plays like R3 efficiently and effectively.
I wonder if there are some benefits to tiered distribution even when it’s possible to flatten things out.Perhaps bitcoin can disintermediate the stock market to some extent (I don’t believe it will due to incentive problems, but it’s technically possible). At the same time, bitcoin clones have given birth to a highly fragmented, deep market in crypto assets. And I see no way of disintermediating the market for crypto assets in the long term.
This is a very simplified model. The old model in SECretail—>broker—->specialist—->marketthenretail—>broker (sell order flow)—>prop desk/hedgefund/darkpool—>other distribution—>marketCan blockchain make itretail—>market where everyone competes in the same place?CFTCretail—->broker—–>(market) an open outcry trading pit where pit traders had huge advantage over everyone elsenowretail—->broker——>co-located firms—–>marketIn electronic market, retail is further removed from actual price discovery of market. Shouldn’t be that way.
will bitcoin create a single, flat securities market? so far, it has created many new, illegal (in the US) securities markets and shows no sign of consolidation in that function.in commodities or specialized financial contracts — perhaps an existing market like OTC swaps could be made more efficient in some ways using a P2P network. a permissioned network like Ripple does solve some tech, and some human problems involved in financial contracts (also creates some new ones). we already have a huge success in efficiency with the paper ISDA master agreement, so if they could do something like that with smart contracts it would be very interesting. but i don’t see this as part of bitcoin, it’s a side show (albeit a multi-trillion$ one)
Remember the big aha when we all realized that open source was not a technology but a business model?Is that going to be true for blockchain?
I think in terms of where Blockchain fits into the picture of getting us towards a truly smart Internet.https://uploads.disquscdn.c…
At a high level this sounds right, at any detailed understanding of how this will impact–for example-how communities form on networks.Can you draw a picture of where this touches people?
I haven’t seen any Blockchain app yet that suggests the developers have thought through the data flows or their structures.It’s codable but I’m focusing on Machine Intelligence.
I’m hoping one of the killer apps will be for the tech to serve as a much needed price discovery mechanism (everything from ounce of gold to a bushel of corn). It’s no surprise price control over a given asset is the goal of every major company and it seems democratizing price discovery across our economies could have one of the greatest positive impact on society.But maybe price discovery is a feature not a product and maybe efforts like Open Bazaar will take us there.
Good set-up by TC that fuels that debate.Both private and public blockchains will have a role, just like we have the public Internet and private Intranets.It seems that innovation is greater today in the area of public blockchains, because when they become private, the private stakeholders cherry pick what they want and throw out what they don’t like, so the features end-up being muted, and the blockchain just enables process improvement, but doesn’t rock the boat too much.To add to this, there is a 3rd nuance of flavor that I’m seeing- it’s the semi-private model, which means that 1 company can spin a blockchain App that they own privately, but they open it to the public to get users, and they could be using a public blockchain like Ethereum or Bitcoin or a private one like Steem.In the future, we should be more concerned with “blockchain Applications”, and less with the private/public debate on the blockchain itself.I’ve depicted the public / private blockchain segmentation in my book, and here’s the chart from it: https://uploads.disquscdn.c…
See that’s why I think Fred’s comment about what’s the difference between private blockchains and a general access SQL is so interesting.We can spin up an instance of a database on AWS today. It can be SQL or NoSQL. We can make it public or private access. The keys are hashed.It supports both native / non-native apps.So then … what technical need is there for Blockchain as a ledger (a database)?On the digital currency side, six months ago AWS partnered with the DCG.Is there a schema anywhere that specifies how Blockchain plugs into and is different from Cloud and the client layers? Thanks.If it’s purely as an additional trust & identity layer then that begs the question, “Does Facebook / other social network and their payment system already provide this? Isn’t Apple Pay this trust & identity layer?”
What is different between a database and a blockchain at the fundamental level is how a “state” is updated. With the database, records get updated and 2 databases need to sync-up continuously in order to serve a particular applications, whereas with a blockchain a single record is shared by 2 applications and that is regarded as the version of the truth. So, for internal/private Apps, the blockchain takes a slice of the database that used to worry about synchronization and it takes a slice of the app that used to worry about checking that the 2 parties are legit and that they trust each other. So, a blockchain does allow peer-to-peer transactions to happen whether it’s private or public.
See, someone needs to do a diagram of what you just explained — similar to this diagram of sharding: https://uploads.disquscdn.c…
I have a couple of slides in the book and in my presentations I use to explain. The other analogy is that of Google Docs vs. Microsoft Word when you want to update a document. With Word, you need to wait for the update to come back to you, so you’re “out of sync” for a while. With Docs, you see the updates in real-time and always up to date with the other party’s changes. Explained here: http://startupmanagement.or…
Whether or not it us disruptive, isn’t there value to using a blockchain for transaction management? I’m asking with regards to private blockchain.If I make a transfer from one Schwab account to another, it will settle and be ready for withdrawal immediately. Could blockchain not help with how they are currently managing this transaction internally, or is this what Fred meant by it being the same to an internal SQL database?Couldn’t a private blockchain also help banks settle quicker across banks? Or, like Fred said before, would this just be the same as a sharers private database across the banks that disallowed for double spending?
Exactly yes, and that’s where a lot of the activity is (capital markets): the clearing to settlement cycle. In youe Schwab account, although you see the transfer immediately in your account, the actual settlement takes 3 days (T+3). A private blockchain can help to reduce that cycle, and reduce the cost of finalizing these settlements.
Thanks for clearing that up for me William. In that case, I think firms like R3 offer valuable help with setting these systems up for banks that don’t have the technical know how.One other question though, do you think that there is a more valuable and robust solution that banks are not considering? Wouldn’t it be better to build encrypted layer on top of a public blockchain? My understanding is is that all that energy and processing power spent mining has value. This is what you described in your parent blog post I believe.
Interesting position on network tokens because, in terms of topology, tokens could inform where network risk exposures of the type Ethereum has been experiencing are accelerating or minimizing out (if they could have settings beyond bits).Sorry, that’s me thinking about 5 years time when we’ve gone beyond Quibits and clearly Vitalik hasn’t considered that.https://uploads.disquscdn.c…
Off topic, but it was great to meet you in person William at the CSNYC event Thursday. Always fun to meet AVCers in person and there was some good blockchain conversation happening to boot!
Likewise! I was just thinking about that.
William, I picked up a copy of your book and looking forward to reading it. Question below after some framing…What do you recommend in terms of primers on the deep tech behind block chains. Personally, and I think I might have mentioned this to you Thursday as context to why I was a bit tired, I’ve been a bit obsessed, well in to my career and at middle age of 44, of going back and getting deep into technology. I feel like the “just enough” approach I took for many years will not serve me well in this next shift. Right now I’m doing an intensive system programming class, where we’re going deep in to stuff like arena allocators, assembly, processor and IO caching, etc. Must of this comes from my belief that technologies like blockchain will end awarding those who have deep math and tech – things I had 25 years ago but foolishly set aside as the consulting world temporally convinced me that making pretty powerpoints and presentations was more valuable.Anyway, I browsed around the ethereum github today and was mildly pleased with myself that I could read and understand why code like this, https://github.com/ethereum…, is important and needed.So my question is this – what do you recommend as resources around the technology behind block chain, both language independent (cryptography, etc.) as well as stuff, especially, that will get folks up to speed on the actual coded behind the various stacks?
Great. Thanks Rob. (Don’t forget to slot an Amazon review when you get a chance).On the technical sise, the Ethereum github is a good entry point, but start on the Ethereum.org site and follow some links from there too.On the general blockchain tech, I would recommend Andreas Antonopoulos Mastering Bitcoin (you can pull it for free on GitHub)For blogs, I like Hacking Distributed from Emin’s gang at Cornell.To stay on top of the whole industry, you can use my super aggregator OnCoins.org
William, so great to talk with you to this week. I’m still in blockchain “Kindergarten,” and hope to graduate to 1st grade soon.I’m searching for a small, MVP style application I can play with, watch users in small cohorts, and learn from. In 1996 I threw up (yes, more like vomited) a website, with such low cost and low tech – but was able to build, fail, & learn over the next year or two, and eventually grew a successful company.Trying to figure out the playground for Blockchain….
Blockchain is bullshit. In a few years , it will be as obsolete as pager was soon after it got launched. And William, please don’t promote blockchain as though as you are father of that technology. YOU ARE NOT.With increasing threat on security and cyberwars, this concept will soon fade away faster than you wipe your a!&$&k$&Thank you
Yeah, whatever.
Great spirits encounter the most violent of opposition from those of…blah blah blah. Keep teaching us William. Take a day off and get a buzz and hot shave. 😉
Buzzcut #1 ;)Haven’t tried a hot shave yet.https://uploads.disquscdn.c…
Spa day for your face. First time was part of a BDay gidt from my wife A few years ago. I don’t think I had to shave for the following two days. Of course you will want a pretty experienced blade wielder on hand…so to speak…
Perhaps you should get rolfed. It’s all about gravity.
I was having a discussion on the future of ridegsharing with my partner the other day and we were discussing if companies like uber will have a value in the future. When cars are autonomous, is it not possible to have a fully decentralized marketplace built off ethereum? Uber’s current value is to drivers and riders efficiently and at an efficient price. Can this not just be an open unsupervised marketplace? Are there any examples of marketplaces right now that work like this?
Great point. Think franchise model. Super cuts doesn’t own any hair saloon. But the Super Cuts brand ensures certain SLAs on customer service, cleanliness, etc. In your visionnof a decentralized marketplace, brands like Uber will have to add value through SLAs like bump-free rides, interior comfort, accident insurance (in case the car decided to kill the passenger to save kids in front of it), and so forth.
Big bank investment in “blockchain” reminds me of Microsoft’s rumored goals in promoting “open source” — to drown out news coverage of competing products, and capture free developers with too-good-to-refuse employment offers.Bitcoin is a natural enemy to big banks, just as desktop Linux ecosystem is a natural enemy to Microsoft’s core business. Microsoft crashes the open source party to draw attention from possibly viable competing free or libre products. Sometimes literally — they send people to attend open source community events, then issue press releases trumpeting MS involvement, so that the story becomes about Microsoft rather than the competing product.Banks may be up to the same old tricks — show up to the blockchain party with some cash and PR, steal the headlines and developers away from bitcoin. Doesn’t bother me though — it only takes a few committed cypherpunks toiling away to keep advancing the state of bitcoin. Permissioned ledgers are a distraction only for the easily distracted among us.
Indeed public blockchains are a very different thing that a private blockchain. The later should be just called “fintech innovation”. Here I share a work in progress in comparing key metrics between different blockchain propositions (including those fintech innovations 😉 ).Some obligatory updates required are: Zcash, Monero, Hyperledger, HydraChain, and Guardtime.
scattered around Europe are countless abandoned castles and fortresses. the people building private bankchains should take note. history makes no exceptions to its rules
I don’t trust wikipedia for anything significant. Entertainment, yes. The reason is I can never be sure at any point in time that the information is accurate for any important purpose. I would or should trust an article on a closed website (like the Mayo clinic) more for, as one example, medicine [1] than I would or should trust wikipedia where I don’t know who is responsible for the content or who might have done an edit that wasn’t picked up and reversed. Hence the disadvantage of a open system with no oversight. Seat of the pants I have a hard time with this. That’s my point when it used for something of importance since there are dozens if not hundreds of people whose asses aren’t on the line if the wrong thing happens. (And not saying that having asses on the line prevents errors either..)
Big part of how banks make money is that they take a piece of the transactionHowever there is a value in that cost in that it provides accountability in theory that the right thing will happen. This is no different than using gmail for free vs. some other email service which is paid. You get someone who attempts to care and help if there is an issue and stands to lose revenue directly if the wrong thing happens. Google (or the blockchain to extend this) cares about everyone but cares about noone.
Why shouldn’t Silicon Valley do the business of banking? Because it’s the land of beta products and a million chances to get it right. We saw this recently with Tesla’s not ready for prime time auto pilot where the mentality of pushing out a product not ready and cleaning up the mess caused not only a death but dozens of people to do stupid things with the product that it wasn’t intended to do anytime in the near future. This was something that I actually predicted would happen when you get software and hardware guys with that mentality to sell a product that can’t have a chance of failure period. [1][1] Once again not that this doesn’t happen with traditional companies in the business (Takata) but not to the extent that I feel it would happen with silicon valley mentality making important safety related products and services.
It’s unclear to me why the filmakers who obviously are very proud of the professional video they have made (you can tell by the editing technique they are using) missed the class in film school about applying makeup prior to doing extreme closeups of people unless you want to present them in a raw unflattering way.
Well I made him come to me and film in my home office on a day I didn’t shave and perform standard male hygiene 😉
Listened to #TWiStartups this week concerning talia.co In Kenya something like 50% use a bitcoin derived currency to trade.
As a recovering i-banker, I can guarantee you that all of Wall St’s movements on blockchain or any other “change’ is met with STRONG efforts, both economic and political to keep the status quo and maintain moral hazard… the monetary incentives for these players is TOO great
Also, given blockchain’s current structure and limitations of scale, isn’t this more viable for low transactional higher security niche today?