Why Blockchain Banking Will Likely Never Be Truly Decentralised

in Economy by

Dappsheet generally touches upon subjects that relate to the impact of blockchain technology. In this article, however, we are doing something entirely the opposite – we will challenge one of the entrenched assumptions relating to its longer term effect on traditional banking services.

“Children born today will not know a world in which banks exist.”

That was the bold claim from Andreas Antonopolous during a speech he gave to the 2017 Internetdagarna in Stockholm, entitled How Bitcoin is Changing the World.

Antonopolous’ argument is that because blockchain technology is trustless, peer-to-peer and operates without a central authority, the management of assets will fall out of the hands of banking institutions.

People will, on the other hand, simply be able to download a Bitcoin client onto their smart phones which will become its own bank account – and perhaps even its own bank, according to Antonopolous in talks elsewhere.

Personally, I have huge respect for Antonopolous’ work – his books on both Bitcoin and blockchain technology have rendered what were previously subjects with a high intellectual entry barrier much more accessible.

His insights into the fall-out of blockchain technology are as fascinating and as engaging as anything you could hope to find. But when it comes to DLT resulting in the withering away of centralised banking services, there seems to me to be plenty of ammunition to counter his argument.

Blockchain Magic Does not Extend to Personal Security

In early January of 2018, a London-based crypto-trader was the victim of an assault and robbery in his own home during which he was forced at gunpoint – with his family watching on – to release his Bitcoin to an address handed to him by the robbers.

The incident is not, of course, the only example of its kind. Bitcoin robberies – or crypto-robberies more generally – are on the increase in direct proportion to the increase in adoption of cryptocurrencies.

And the issue has demonstrated that, whilst the Bitcoin network can use the most advanced cryptographic methods currently known to man to secure your assets on its network, it cannot fend off violent criminals who ask for your private keys whilst pointing a gun at your head.

Multi-Signature Solutions

The solution, some claim, is simply to make your crypto-currency wallet multi-signature. With this approach, the assets in your wallet cannot be released without synchronising all parties whose consent is required to do so.

There will continue to be a need for managed services to secure your assets. And those services will simply have to follow a traditional, centralised model.

This, however, raises its own problems. You could, say, add signatures from your spouse, your siblings, your parents etc. to the wallet. But the problem here is that they now become potential targets too of an organised criminal attempt to steal its contents.

And what happens if the other counter-party simply isn’t available, or if you fall out with your spouse, or if one of your parents dies and so on?

We are beginning to see, then, that there is still likely going to be a need for managed, professional services to secure large crypto holdings and any subsequent transfer of ownership.

And those services will simply have to follow a traditional, centralised model – involving a secure vault that is accessed through a time lock, perhaps observed by an armed guard and backed up with some good-old fashioned insurance premiums to boot.

Hybrid Model

What we are likely to see in the end up is traditional banking transitioning to a hybrid model of blockchain-based, P2P tech mixed in with standard banking structures. So crypto-wallets will likely become embedded into our smart-phones and driven by fingerprint or face-recognition technology for simple, every day transactions.

On the other hand, when it comes to transferring large amounts – such as those required in the purchase of a home – users will simply engage the use of a traditional banking service to act as the second signature of a multi-signature wallet.

So, whilst traditional banking may not yet disappear and blockchain technology still implies a redistribution of power towards the user, this is unlikely to be entirely at the expense of HSBC or JP Morgan Chase.