by Joseph Young
The syndicate formed by the banks called the R3 consortium attempts to duplicate the technology of Bitcoin by developing a centralized blockchain-based financial system that could be used within the existing banking infrastructure.
However, while the blockchain network of the banks could benefit financial organizations and institutions in the network by reducing IT management and transaction settlement costs, it will have no consumer benefit at all. Thus, using the independent blockchain network for existing banking customers and clients is virtually impossible.
More importantly, the R3 consortium is contradicting the concept of a peer-to-peer network and trustless financial system introduced by Satoshi Nakamoto in 2008. The Bitcoin blockchain is decentralized and transparent in nature. It allows anyone to transfer money globally for free, without the involvement and interruption of a third party application or a mediator.
“The reason the bank’s blockchain is likely to fail is one word — control. A secure blockchain needs to be audited externally through a reward mechanism that has enough value to incentivise auditors to run algorithms. The most secure way to do this is to allow anybody that chooses to run the code compete for the reward, which is exactly how the Bitcoin blockchain works. This requires releasing control. Banks want control over everything and this will be the downfall of banks efforts, I believe. If they are willing to use the Bitcoin blockchain then they stand a chance, but that means using technology that can do the same thing as some of their core services cheaper without them, so I won’t hold my breath.”
Last week, the R3 Consortium announced that it had hired former core bitcoin developer Mike Hearn to work on their version of blockchain. However, the Hearn’s controversial exit from the Bitcoin project agitated many enthusiasts and experts in the community, as he stated that the reason for his departure from the Bitcoin community was his belief that Bitcoin as a technology has “already failed.”
With the help of Mike Hearn, banks participating in the R3 consortium are beginning to develop of their centralized blockchain network, with an aim to be “at the forefront of this global evolution,” R3 CEO David Rutter stated.
In a widely publicized blog post entitled “The Resolution of the Bitcoin Experiment,” Hearn provided several arguments and explanations as to how the Bitcoin has already “failed” due to the pending block size increase proposal and other technical issues.
“If Mike Hearn would rather work for banks, rather than disrupt banks, then that is his choice and maybe a more secure career move in the short term, but creating uncertainty amongst new Bitcoin investors and the media in such dramatic fashion before leaving is unforgivable and upsetting to many who have also worked so hard on Bitcoin. I believe working for banks will give less career stability in the long term as the markets unfold,” said Dixon.
Dixon added that although the banks believe their war against Bitcoin could benefit themselves and allow them to lead the global digitization of current monetary systems, the instability and low security levels of an independent blockchain network will present technical challenges which the banks may not be able to handle in the near future.