Blockchain is not omnipotent

    The article reflects the private opinion of the author and is not an official position of Alfa-Bank.

    Blockchain is not omnipotent: why can't distributed registry technology shake the financial world like cryptocurrencies do? It is probably difficult to name a more hype theme in fintech than blockchain. For the fourth year, witnesses of this technology have been talking about how it will change the world in general and the financial industry in particular. True, the promise of technology has not yet been confirmed by numbers. Last year, global investments in fintech exceeded $ 31 billion . Blockchain projects accounted for $ 512 million and 92 transactions. Just for comparison, the insurance company (aka insuretech) collected 4 times more in money (2.1 billion dollars) and 2.5 times more in the number of transactions (247).

    I emphasize that this does not mean that blockchain is a bad technology or it has no prospects. On the contrary, there are industries where its implementation is waiting with great enthusiasm. Just yesterday, news came that the American company Cognizant immediately united 14 Indian insurance companies in a project to create a blockchain platform for exchanging data. Participants believe that such a platform will help to avoid falsification of documents and false billing, and this, in turn, will save a lot of money and time. The changes will penetrate the insurance business models themselves, which is unlikely to make insurance cheaper, but more convenient - for sure.

    However, in the vast majority of cases, everything is limited to pilots and agreements of intent. The “convenient” blockchain for transactions has now been put into commercial operation by only one bankSantander , which, based on the Ripple platform, conducts international payments. From the description of the project, there remains the feeling that they did it for the sake of a beautiful press release and in order to somehow explain Santander's investment in Ripple made three years ago. Because from a user point of view, Santander One Pay FX service does not contain anything new. Quick translations existed before. Is it possible that the features of the blockchain did not allow us to come up with something useful and tangible?

    In fact, the reasons why the blockchain remains a very beautiful, but impractical technology are quite commonplace. That's just overcoming them can be a rather intricate process.

    Mustache, paws, tail - these are my certificates!

    Large corporations love certificates. These pros relate to paper confirmations of their competencies in very different ways, but in most cases there is an equal sign between the presence of a profile certificate from a recognized center of competence and access to work.

    In the world of blockchain, self-taught people rule today. They can be arbitrarily talented (and I believe that most are really cool), but from the point of view of the decision maker in the corporation, they are impostors. And they cannot be entrusted with a project affecting core business. If we try to meet the mossy phobias of corporate managers, we will quickly encounter a lack of universally recognized certificates. Keyword search brings us at best to lists, like this, where the IBM Blockchain Foundation course on Kurser was intricately intertwined and an hour and a half (!) video “Blockchain for beginners”, which is offered to be watched for $ 11. Yes, of course, all such courses provide certificates, but what can be done with them under the tough gaze of a corporate manager is easy to guess.

    A separate item is security experts in the field of blockchain. They simply do not exist, because the vector of threats lurking in the new technology remains a mystery. Successful attacks on cryptocurrency exchanges do not count, you need to accumulate a database of unauthorized penetrations into public and private blockchains, as well as develop methods to counter them.

    Until the IT giants of the level of Oracle and Microsoft begin to engage in certification of blockchain specialists, waiting for mass blockchain implementations in critical areas is a bit naive.

    Zoo slow standards

    The fact that there are many different blockchains is not scary. At the initial stage of the formation of standards, this always happens, and diversity does not interfere with implementation. The best option is simply chosen, and a bet is made on it. The problem with blockchains is that they are worse in speed than seemingly “obsolete” corporate databases. Public blockchains lag far behind. Private - at times. There are areas where the transaction speed is not critical - the same insurance, logistics, notaries, etc. But in classic mass financial transactions, the usefulness of introducing blockchain is not obvious. And if a person in a suit also finds out that the cost of transactions on the blockchain is still significantly higher due to the cost of more data (electricity, storage space, bandwidth of communication channels), it will be unrealistic to get his signature on the project.

    Scalability as a challenge

    Scaling a centralized database up or down is an elementary task. Cloud services and virtualization have turned the scale of traditional platforms into something that does not require preparation. In the case of the blockchain solution, the physical increase in the number of servers or cores is not directly related to performance. Due to the peculiarities of the technology itself, the type of data in the blockchain affects the cost of resources, so do not be surprised if adding passports to the database scans suddenly puts a virtual machine. It is impossible to assess the scale of influence “ashore”. That is, the problems of project budgeting are added to purely technical difficulties. People in suits don't like this.

    Snowball uncertainty

    Imagine what you want to implement blockchain in your organization. With the motivation that it is modern, technological and allow you to save on license fees for commercial databases. But when it comes to the details, we find out that a) it’s more difficult to find specialists than Bitrix tamers (although it would seem, where more difficult?), B) the system will run at the same capacities more slowly and c) it is possible to estimate the cost of scaling only in process, but not at the start.

    It is quite obvious that you will be offered to create a test zone, see how it goes, quickly search for employees, and after a year or two ...

    Actually, this is what is happening. For 4 months of 2018, only one European bank invested in the blockchain platform (Credit Agricole and SETL transaction), but this is not a solution purchase, but a share purchase together with S2iEM, Deloitte and Citi. Other banks prefer to invest in the optimization of work with stocks, bonds and other securities.

    We will not deny that cryptocurrencies shook and in many ways changed the financial world. But the blockchain, which became the foundation of cryptorevolution, could not shake the classic financial institutions as well. To do this, he will have to learn to walk in a suit, protect budgets and keep track of KPIs.

    Well, or to offer the mass consumer something that makes classics an anachronism. Although aren't we expecting too much from just a more secure database?

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