Bitcoin technology, also known as the blockchain, is of great interest to a lot of people. Financial institutions all over the world are experimenting with the concept, albeit in a private and permissioned version. The primary selling point of open blockchain standards is how an immutable ledger of records is created. But some people see this as a problem as well.
Immutability Is Never A Bad Thing
On paper, the prospect of having an immutable record should be appealing to any financial institution. There is nothing to hide, and no corruption or fraud to be worried about. In fact, this concept translates beyond the financial sector, as any business or project could benefit from having indisputable records of authenticity.
Unfortunately, not everyone sees it that way, for some unknown reason. An immutable record builds trust, something that is tough to come by in our society today. At the same time, this immutability may limit some of the possibilities for blockchain technology in the financial services sector.
Privacy laws, for instance, could prove to be a thorn in the side of blockchain technology. New legislation in various countries seems to favor the idea of “the right to be forgotten” in the financial sector. However, if there is a permanent record of transactions – possibly including human error – not being able to rectify it becomes a problem.
To put this into perspective, financial service providers will need to improve upon its lack of pristine accounting skills. Human error is far too common these days in the financial sector, and the blockchain will not be able to solve that problem. In the real world, some records need to be erased or changed, which creates a lot of confusion and obfuscation.
But that is not the only problem, as the blockchain is subject to regulation as well. Open standards, such as the one provided by Bitcoin, cannot be governed as there is no central authority. Private blockchains, however, are very different. Since they are still controlled by parties, it is easier to exert pressure on these service providers.
Time To Address The Real Problems
In the end, people need to understand there are different types of blockchain technology. An open standard presents immutability, which is a trait our society will eventually work towards. Private and permissioned ledgers, such as Corda and Hyperledger Project, are not immutable and can be controlled.
Neither of these solutions will provide perfection for every [financial] service in the world. But that does not mean immutability is a negative aspect by any means. If the financial sector needs amended records, they have far bigger problems to worry about.
Source: NY Times
Header image courtesy of Shutterstock