This sounds exciting. My gut reaction was that the banks aren't going to use it for actually transferring money, but as a way to notarize transactions that will be acknowledged by the whole group. It does sound like a cool way to verify everything going on among a network of players.
And there's a lot of weird hate towards bank on HN. I know they're not great, but it's really not helping the conversation to just say things like "woooo banks are scary!"
//edit: A key quote from the press release:
> The group will collaborate on research, experimentation, design, and engineering to help advance state-of-the-art
enterprise-scale shared ledger solutions to meet banking requirements for security, reliability, performance,
scalability, and audit.
It's a shared ledger system! So, really no need to have it be bitcoin. It does make sense. It'll be great to see the confused looks on lawyer's faces when they try to lobby to change the blockchain history.
Banks aren't scary, they're a-hole dinosaurs. Banks epitomize centralized authority and regulation. Banks borrow money for less than they lend it effectively guaranteeing a profit if properly and concervatively managed, and yet they have recently and repeatedly failed. In the process they have inflicted enormous harm to our economy and lives, but they have not shared a proportionate share of the costs. The costs they impose hardly justify the veritable monopolies banks are afforded by the laws and regulations which are very effective at preventing competitors from entering the market.
Now consider where the tyical HN reader comes down on these issues. So yeah. Not a lot of love for banks.
> In the process they have inflicted enormous harm to our economy and lives, but they have not shared a proportionate share of the costs. The costs they impose hardly justify the veritable monopolies banks are afforded by the laws and regulations which are very effective at preventing competitors from entering the market.
I'll just guess you're American.
America's obsession with "free market" is why you have terrible banks, terrible health care, terrible conditions for low income workers.
Governments are intended to serve the whole of society. If you elect a government that decides society is best served by private enterprises which are solely interested in making a profit and aren't bound by laws saying they have to serve the entire community responsibly, what do you expect?
And here's a tip for you: "disrupting" banks isn't going to work out well either. If banks are taxi's, what will the bank equivalent of Uber look like?
A company that hires thieves to run it's operations, and every 100th customer has their funds stolen by a member of staff.
Banks don't need more competition to be better. They need to be legally required to operate in a way that is financially reliable, and held accountable when they don't.
> America's obsession with "free market" is why you have terrible banks, terrible health care, terrible conditions for low income workers.
America's lack of free markets more like. Between the bailouts and increased regulations, bad behavior has been rewarded and good actors (including small community banks) have been hit pretty hard.
> If you elect a government that decides...
The problem with thinking government is the solution is that popular opinion is cyclical:
So whatever power you give to government to "set things right" and "ensure fairness" will be used (in probably less than 10 years) by someone else do do something "unfair" and "corrupt".
> They need to be legally required to operate in a way that is financially reliable, and held accountable when they don't.
I reject that the dichotomy is government on one side and corporations on the other. Most of the time, they are on the same side. Corporations campaign and get regulations and handouts friendly to their business models and push out competition. On a local level, sure, you have taxi lobbies getting strict rules that eliminate competition. On the federal level, we have laws on the books that allow jail time for violating copyright, which is basically violating a business model. I could see civil penalties, but jail time?
The good bits of US healthcare are the bits provided and paid for by the government. It's a weird combination of expensive (the US government pays more per capita than any other healthcare system; and insurance is expensive) and hard to access.
> On the federal level, we have laws on the books that allow jail time for violating copyright, which is basically violating a business model. I could see civil penalties, but jail time?
I agree that jail should be avoided for non-violent criminals. Isn't copyright law a combination of civil penalties (for people who just download stuff) and criminal penalties (for people who operate a business based on downloading stuff)? So if I download a bunch of movies they can sue me for loss of earnings of those DVDs, but if I burn those movies to DVDs and sell them it becomes criminal?
> The good bits of US healthcare are the bits provided and paid for by the government.
Like the part where I have to spend hundreds of dollars to see a doctor for something silly? Most of the time I go to the doctor, he doesn't tell me anything any nurse couldn't (and it's probably something I knew myself, walking in). So costs go up. That's all government.
See also the basically unchanging pay-for-treatment model with is more-or-less mandated by acts of Congress. Want to create a medical retail startup that charges flat rates based on outcomes somehow? List all of the risks in that plan. How many of them are due to government regulations?
To be fair, maybe medical regulations are fair, but acting like the private sector ruined healthcare is ignoring the tradeoffs of those kinds of regulations.
> loss of earnings of those DVDs
Exactly. Violating a business model. So the company should be able to recoup their losses in civil courts if it's unfair competition.
> Like the part where I have to spend hundreds of dollars to see a doctor for something silly? Most of the time I go to the doctor, he doesn't tell me anything any nurse couldn't (and it's probably something I knew myself, walking in). So costs go up. That's all government.
a) if it's something 'you already know yourself', why are you going to see a doctor?
I've been to see a doctor (apart from return visits for a followup, or health certificates for my visa/work permit) a total of twice, in the last 10 years I'd say. Once I sliced my finger open (and it had to be cauterised) the other I had a weird allergic reaction to something and developed a rash. In that time I've had literally hundreds of cold's, the flu 3 times (in one year!) and plenty of small cuts bruises etc.
Why didn't I go to the doctor for all of those? Because I don't need a doctor to tell me "drink fluids|take over-the-counter medicine|put a band-aid on it|keep warm" for basic health care. If you are visiting the doctor every time you have a cold or flu, maybe you need to stop complaining about your government being inefficient and start taking some personal responsibility.
b) just because it costs 'hundreds of dollars' in America doesn't mean it has to. It's not a coincidence that your government is known around the world as being pretty ridiculous when it comes to getting shit done. Australia has universal health care, and there was recently a huge issue when the then-newly-elected government tried to introduce a $7 co-payment for each visit to a doctor.
> How many of them are due to government regulations?
American government regulations. Just because you have crazy laws, doesn't mean the rest of the world does.
I disagree, the structure is inherently centralised. What you are describing is more centralised control as the fix for too much centralisation. Centralisation concentrates power, that power is always going to be manipulated and perverted by those in the right places. You can't fix this with extra layers. You need an entirely new system, tear it down and start again - all of it - it's not fit for purpose. In it's place you need a decentralised systems whose intrinsic dynamics give rise to the properties we desire. Which is exactly what human social structure provides - when operating on the small scale - a balance between selfishness and altruism. Scale it up to it's current size and degrade the role of altruism and you end up in this catastrophic fuck up.
I love how "being American" makes one somehow obsessed with free market and all that other hogwash that is apparently embedded in the hearts and minds of every American. I don't expect anyone to apologize for their place of birth, and I would ask that the same in kind.
From an outside view, American society by and large seems to embrace unregulated 'free market' concepts and/or minimising the government's ability to have any kind of impact on society.
The person I replied to claimed that Banks are the problem, and specifically mentioned the 2008 financial crisis, which was the result of banks doing things they never should have, because they are either not bound by laws about their behaviour, or they're not punished appropriately when they break said laws.
Banks do not create money out of thin air: central banks do. Through loans to charter banks and bond purchases, the Federal Reserve creates (or destroys) money whenever the internal one day inter-bank loan market interest rate is above (or below) a certain guideline (the "interest rate").
On the other hand, if I deposit $100.00, the bank is allowed to loan a certain percentage of it to someone else. That is fractional reserve banking. Let's say the bank operates with a 2% reserve. I deposit $100.00, they loan $98.00 to Johnny. A naive understanding of the system would lead you to think that the bank "created" $98.00 because the sum of the balances of yours and Johnny's bank account is $198.00; it did not. If Johnny doesn't pay his loan back, they're out $98.00. Your deposit is a liability for the bank. The loan is an asset. So in this situation, the bank has $100.00 in liabilities, $98.00 in assets and $100.00 in reserve.
When too many people don't pay their loans back, you have a bank run. Part of the reason the Federal Reserve system exists is to avoid this situation by allowing the banks to borrow from a lender of "last resort" if this were to happen.
Money is largely created by commercial banks. Let me quote from a 2014 report by Bank of England titled "Money creation in the modern economy."[0] Follows selection of excerpts from the report's Overview section.
"In the modern economy, most money takes the form of bank
deposits. But how those bank deposits are created is often
misunderstood: the principal way is through commercial
banks making loans."
"Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits."
"Rather than banks receiving deposits when households
save and then lending them out, bank lending creates
deposits."
"The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. The central bank can also affect the amount of money directly through purchasing assets or ‘quantitative easing’."
I recommend reading the whole report. It is meant to be readable by the non-academic and is not dumbed down either. The report is part of Bank of England's Quarterly Bulletin from 2014[1], it contains other similar articles like "Money in the modern economy: an introduction."
Not to disagree with the point you're making, but relying on a bunch of references to Bank of England sources is not really an un-biased argument. They have a vested interest in you assuming they're doing "the right thing" but have also been implicated in the whole LIBOR scandal[1], so I now tend to take their press releases with a handful of salt.
"Banks do not create money out of thin air: central banks do."
I think that's not exactly true.
The reality is that banks make loans and then search for the reserves. So, in practice, are the credit departments in commercial bank who decide if new money is created. Central banks can influence this by making the creation of new money cheaper or expensive.
Indeed. I think what I'm trying to clear up is that the "money" created by banks is not "free money". It is a carefully crafted game of musical chairs on the bank's balance sheet. Bottomline is, the loan is an asset and the deposit is a liability. Banks don't create M0.
No, but nobody cares about M0. It's M2 that creates demand in the marketplace. As soon as a bank fails, all that created M2 disappears from circulation and that's what crashes economies ("too big to fail"). In a full-reserve banking system (M0 = M2) nobody would care about crashing banks.
> Bottomline is, the loan is an asset and the deposit is a liability.
I used to be as skeptical as you about the full-reserve crowd but that point is actually what got me thinking: banks are the only players in the economy for whom giving out loans is a balance-sheet extension (what you're describing). They're worth more, the more loans they give out.
For everybody else, giving out a loan doesn't change their net worth! They're just exchanging one asset (money) against another asset (an IOU from someone). In other words: banks are special and are not allowed to fail, because we let them create money.
>Different measures of money supply. Not all of them are widely used and the exact classifications depend on the country. M0 and M1, also called narrow money, normally include coins and notes in circulation and other money equivalents that are easily convertible into cash. M2 includes M1 plus short-term time deposits in banks and 24-hour money market funds. M3 includes M2 plus longer-term time deposits and money market funds with more than 24-hour maturity. The exact definitions of the three measures depend on the country. M4 includes M3 plus other deposits. The term broad money is used to describe M2, M3 or M4, depending on the local practice.
You're confusing private banks with central banks. I don't think anyone is surprised that the U.S. Fed reserve regulates the money supply in part by creating it.
Nope. This is how money is created by both central and commercial banks. When commercial banks do it it's a loan. When the Federal Reserve for example does it they are buying a government bond. Same process. Alas, if only people knew.
If I borrow $100 from Bob (deposit), and turn around and immediately lend the same $100 to Charlie (loan), is that creating money? This is essentially what a commercial bank does, except on a much larger scale. If this is creating money, then anyone can create money, not just banks.
The Federal Reserve, on the other hand, can create money from nothing and use that to buy government bonds, like they did with QE.
Yes, it would expand M2 money supply and affect inflation, but I don't think the scenario I painted was what Kinnard had in mind when he wrote "Banks don't actually borrow the money. They create it." To 'create money' under my scenario, you have to borrow it from someone else first.
You're not accounting for fractional reserve banking, where the banks only need to keep a certain amount of deposits on hand, and can loan the rest out to other people. For example, you deposit $100 into a bank. They keep, say, $20, and loan Erin $80 out to another person. This essentially creates money out of thin air since you still legally own that $100 dollars, and but now Erin has $80, bringing the total amount of money in our little economy to $180.
This all works fine assuming you don't try to withdraw all $100 since they only have $20 on hand. Nor would it be good if Erin defaults on her debt. Or the bank collapses. This is what FDIC is there to protect, where the government will create new money in case things collapse.
And what will Erin do with that money? She will give it to Tony in exchange for some service. What will Tony do? Pay that into his bank account. Which means the bank now has an extra $70 (assuming they keep a $10 reserve) that it can loan out, bringing the total amount of money in our economy to $250.
Also that $80 that Erin borrows will need to be paid back with interest. Say the interest is $20. She pays back $100. The bank now has $120. That $20 that she paid back had to come from somewhere. Say she sold a blanket she knitted to Paul to make that extra $20. Where did Paul get that money from? He had to borrow it from the bank. And the cycle continues...
Buying assets (e.g. bonds) is one of the channels the Fed reserve uses to put new cash into circulation. Another channel is loaning the new money out, with interest, to private banks.
Private banks aren't creating money, the central bank is. You've confused the two.
The money that the central bank creates is central bank money/high-powered money/M0. The money that private banks create is the money in general circulation, i.e. M2. M2 is much bigger than M0.
I don't know. It's easy to over-interpret what somebody intended to say.
Which brings me to your own "M2 is derived from M0". There are certainly interpretations of that statement with which I would agree, but there are also interpretations which are seriously dubious. For example, the interpretation that "there is a causal mechanism from the quantity of M0 to the quantity of M2" is highly doubtful. The economists who actually study those things seem to come down mostly on the side of endogenous money, which says that the causality is the other way around: "changes in M2 drive changes in M0" - or rather, they did before interest rates went to the zero lower bound, at which point the two quantities became decoupled.
Disclaimer, I'm not an economist, but I'll leave a brain dump anyway ...
Everyone's a bit confused. Or talking at cross purposes.
* Central banks create M0 (either paper currency, or electronic equivalents - original fiat money). (I had to say fiat, or some gold bug would complain that gold is the real money).
* Banks borrow money, lend it out again, then when the money comes back to the banks they keep recyling it in an infinite cycle, creating M0/fr amount of broad money (M2?).
* Then other infinite cycles create even broader money, but let's forget about that.
A lot of people (especially bitcoin and gold proponents) forget is that the government can still create M0 if it's not just greenbacks (by lending out "imaginary" gold or bitcoins - as long as someone will take an IOU from the government in return for a little bit of interest). Banks can create M2, as long as someone will take their IOUs (with interest). You can ban lending, but since the critics of money usually lean Libertarian, that's not an argument you often get.
What some post-keynesians and some economically literate marxists (and maybe MMTists, I don't actually know what they're on about) suggest is that the fraction can suddenly change.
Boom - lowering fractional reserves, which means the total amount of broad money keeps increasing.
Bust - banks try to lower fractional reserves, which makes the total amount of broad money contracts.
The fraction is often treated as a constant, but if it suddenly changes (or the desired target suddenly changes), it can have a massive impact.
Banks get very comfy lending out money with very low reserve rates (effectively the multiplier of money), because whenever there's a crisis the government will "print" M0, and hand it over. So as long as the banks don't act more irresponsibly than every other bank, they can't fail. "Macroprudential" reforms (telling banks to stop it when they lend to much, or risk fines / penalties) is becoming fashionable for this very reason, since telling banks they'll all go bankrupt is about as credible as a teacher yelling "If the class isn't quiet I'll expel the lot of you!".
I like to consider the human side - in the asset bubble that occurs when M2 is rapidly growing, everyone wants to work hard and save hard, because otherwise they'll never get on the property ladder. That creates a boom, then a bust when they realise it's a Ponzi scheme. Economists who know better talk about high investment, then a crash in investment when the money suddenly dries up.
So, a theory of regulatory practise might be to shoot a child every so often. Then the rest of the class would be quiet, certainly for a period of time.
(See analogy above, do not assume I see this as good educational practise)
Banks do borrow money from the central bank occasionally, though mostly they just sell government bonds to the central bank in exchange for money.
The general thrust of what you're saying is correct, though: If you want to understand how money enters the circulation among the general public, you absolutely have to look at banks. The central bank and the government have almost nothing to do with it outside of their regulatory function.
The amount of confusion surrounding this post says it all. Very smart people are like dark age europeans debating health best practices. Why don't people know how the bedrock component, Money itself, of the economy works?
Nope, not so. Banks don't borrow money from depositors and lend it to borrowers. They create the money they issue as a loan. Sadly, no one understands this: https://en.wikipedia.org/wiki/Money_creation
Let me give you an example. I'm worth $100. We agree I lend you $1,000,000. Sure, I don't physically have $1,000,000 but I can still make a loan to you and give you some piece of paper telling you you have $1,000,000 deposited with me. My assets have increased by $1,000,000 (loan amount) and my liabilities have increased also by $1,000,000 (what you have deposited with me). I'm still worth $100 but I created $1,000,000 of new money.
This is what commercial banks are essentially doing. It's not like they have some superpowers. Everybody can do this.
>This is what commercial banks are essentially doing. It's not like they have some superpowers. Everybody can do this.
You can't create $1,000,000 in a spendable form. Banks can. What you have proposed is the creation of some sort of worthless security which, yes, anybody can do.
If you, private Bank Lubos, only have $100 on hand but have a customer who wants a $1,000,000 loan, you don't just write a piece of paper. You would go to the U.S. Fed Reserve (central bank) and take out a loan for $999,900 with interest..
The central bank creates the $999,000, and the private bank charges a premium on the interest rate.
I'm not sure what you're point is here. There is no magical world 2008 or not, never do you see 100% of people paying back their loans.
Conservatively managing loans means minimising lending to people likely to default, and leveraging enough to cover those who do. You do not need 100% of people to pay back their loans to turn a profit, charging interest is what makes this manageable and guarantees a profit.
While I agree that bankers hold too much influence in politics, this line of thinking is obviously incorrect. First, bankers have margins and compete like any other entity. If they are too conservative they will not get enough borrowers to cover the cost of their staff and facilities. Furthermore, to just earn a profit is not enough, a banker needs to earn a profit consummate with its market capitalization. Most banks are publicly traded, after all.
Well, there's no guarantee of profit. You cannot predict 100% of the time who will pay you back. It's pedantic, but it means there is _no_ guarantee of profit
Of course, you can get pretty close to 100%, but it's a balance of risk and reward, like most things.
right, but GP was implying that profit is guaranteed because of the interest rate differential. If you have any costs at all (even just operating costs), then that profit is not guaranteed
I'm not a fan of banks nor of the amount of money they get for their services, but there's no "guaranteed profit"
You are going to find always consumers of cheap money. That's a fact. Specially if you going searching for them actively as the banks did before the crisis.
There is a reason because controls have to be in the side of the lender.
Banks, and everyone else, are always going to be greedy. The source of the problem was not greed (that is a constant) but deregulation, that have not been properly corrected.
2008 happened because some d-heads decided to throw in the same bucket loans with good ratings and loans with junk ratings. And also because borrowing money was cheap, making it easy for a lot of people to borrow money when they should not have been able to in the first place. A pretty good definition of a bubble. Oh, and thanks to the Fed.
Don't forget Uncle Sam. "Subprime" means lending money to people with a poor credit history. The government was cheerleading the whole way because it allowed poor people to buy houses... until interest rates went up and they could no longer afford their adjustable rate mortgage payments.
The sustainable way to get more lower income people into home ownership is to reduce housing prices (e.g. by increasing the supply of housing). Subsidizing and encouraging mortgages does the opposite of that -- instead of making housing cheaper it makes borrowing money cheaper, which makes housing prices go up. Which means existing home owners love it and new home owners like it... until all the people who couldn't get a loan in a normal market demonstrate why they couldn't get a loan in a normal market.
> Banks borrow money for less than they lend it effectively guaranteeing a profit if properly and concervatively managed
Is like saying that every salesman or shop in the world "buys things for less than he sells it" — it paints a picture of "free money" while completely forgetting all the work and service to society that goes into that process. In case of salesmen and shops, it's logistics; in terms of banks, it's risk management. Modern financial system is one of the most important achievements of our society: it's overwhelmingly effective in managing risks and enabling creation of countless big and/or high-risk projects while maintaining stability. It may seem counter-intuitive when you're faced with recession, but when you look how things rolled out in countries that tried to follow planned economy, communist systems, or, on the other hand, full of corruption "capitalism" that is China, you see how good is the western, first-world capitalism is in comparison.
If banks weren't run by people but were some kind of natural phenomenon, like say a mineral you can find in the ground, then we wouldn't be able to blame them. Instead we'd blame ourselves for being foolish enough to risk our money with them. That's what we've done, we've trusted banks with our retirement savings and what-not but didn't do our due diligence. If they also provide some good that we really want, then probably governments would regulate our use of them. Just as is done with oil, certain controlled plant species, etc. The problem is that governments don't all regulate bank use well enough to prevent chain reaction problems and customers aren't competent to make those risk assessments themselves.
I don't quite understand why you need some of the strong cryptography properties when you have a small, known group of players all of whom are tied together by enforceable contractual relationships.
What can this private blockchain do that a vanilla shared database with change logs can't do?
Provide assurances that nobody is modifying the data behind the scenes (i.e. there's no room for making a change and deleting it from the change logs). They probably have other solutions for this too, but the blockchain is likely simpler to implement and validate.
Just because you have a contract doesn't mean you have an way to prove when someone has broken it. When financial data is involved, you can't trust anyone.
The innovation of Bitcoin is achieving consensus about information cryptographically protected against tampering with pseudonymity. Neither reaching consensus nor cryptographically protecting data is new, it's really only the added pseudonymity. If you don't need it, you can build much more efficient systems without the need for a proof of work or stake or whatever.
No, the key innovation of Bitcoin is that it enables establishing a consensus in a distributed system. That's what the blockchain does. Pseudononymity, by contrast, is nothing special, and arguably all electronic systems can trivially have pseudononymity because how can you really say which real-world entity something virtual corresponds to anyway? Bitcoin is no more pseudononymous than if I generate some random PGP keys with fake names and start signing and sending messages with them.
Consensus in a distributed system is not the innovation of Bitcoin, just propose a new block and let all parties digitally sign the block if they consider it valid. If more than half of the parties have signed the block it is considered accepted. This of course requires knowing the parties because otherwise a single party could just cast arbitrarily many votes.
And here lies the innovation of proof of work schemes, preventing one party from casting arbitrarily many votes by making votes expensive. This also is no innovation of Bitcoin, Bitcoin just put all the pieces together. But if you don't need pseudonymity and can know the involved parties there is no need for proof of work, i.e. you can easily replace mining with an identity verification process. And you get a system that is in some sense better because you remove the possibility to obtain more voting power by buying more hardware.
The system you're describing is not distributed, though. There has to be some centralized arbiter of which keys are considered valid members of the system. This list of keys is vetted and is kept up to date on all end systems.
It doesn't work without that centralized arbiter because then you'd end up with situations where each party has their own separate list of other parties that they consider vetted, and this falls out of sync, and the blockchain completely falls apart as there is no longer consensus on whether any given block is valid or not.
I will agree that the banks can probably come up with a centralized arbiter that works for them, and thus they don't need blockchain technology, but that isn't a counter to my assertion that the blockchain's key innovation is that it allows decentralization in a way that was never before possible.
You could and probably should just include the information about parties joining, leaving or changing keys in the blocks so that there is no ambiguity about the involved parties. The fundamental issue is really making sure that a new party is authentic and not the equivalent of a fake account of an existing party.
You could come up with something like the process when verifying a domain for a certificate, creating a special DNS entry or serving some specific content at a specific address. This doesn't really work because nobody stops you from registering arbitrarily many domains, it is just meant as an example that the process does not necessarily require a central authority.
But there is a hard problem here, who is a party and gets one vote? Could a bank just create ten shell companies and then obtain eleven votes? Bitcoin kind of sidesteps this problem by implicitly declaring you a separate party if you possess some mining hardware and weighs your voting power by the hash rate of your hardware.
So you are definitely right, Bitcoin achieves a degree of distribution that is probably really hard to do without a trusted central authority that has the power to decide who is a separate party and who is not.
If the number of parties is small you could maybe still do it in a distributed way with some manual work. If a new bank wants to join they broadcast a request, use something like the mentioned DNS record to prove that the request is genuine and then all existing parties have to manually decide whether to accept or reject the new party and cast a corresponding vote. But this obviously doesn't scale well.
Not necessarily. You could just have the members vote on whether to add or remove keys from a valid-key list. This basically amounts to putting the list of valid keys on the blockchain itself.
There's a chicken-egg problem there that requires a central arbiter to bootstrap, but the central arbiter then immediately becomes powerless.
The blockchain provides an immutable store of data. Access to that data may or may not be assured, but the data will be there regardless of whether it's accessed or not.
An immutable data store of data would be a new type of storage system the world has never seen before. Up until now, things stored in a database have always had a decent amount of probability they wouldn't stay there forever.
It would be nice to be able to pay a decent amount of stored value to keep some truths as universal truths, where the probability of losing those truths approaches zero. I think there are truths that are worth keeping around and ones that are not.
>Bitcoin is no more pseudononymous than if I generate some random PGP keys with fake names and start signing and sending messages with them.
That sounds like a very anonymous way of distributing messages. Bitcoin's anonymity is more like having an unregistered bank account whereas BB (before bitcoin) all bank accounts were registered in one way or another. You don't even need an 'account' to accept a payment, u just need a magic number, though there is arguably not a difference. I feel like you're talking about network layer anonymity and everyone else is trying to talk more basic protocol.
There are existing algorithms that do that. E.g. Paxos, Raft, 2PC.
Real breakthrough of Nakamoto is devising a scheme where whole network is protected against Sybil attack. I.e. there is no need to don't trust or register parties who participate in the network.
All elements of Bitcoin, such as proof of work, crypto ledger, merkle trees, etc were already known. Nakamoto combined them in a way which solves an unsolved problem.
I never really felt Bitcoin was all that pseudonymous - it's trivial to connect a blockchain address to an individual.
The blockchain elegantly solves a number of problems that had individual solutions, but does it in a way that is easy to repeat and extend while not having any obvious gaps.
I could not personally because I don't care to. But a blockchain address is like any other piece of metadata: once associated with you, it's no longer anonymous. You can create another one easily.
And I actually think that last part (lightweight account creation) may be what the banks are after here. It allows them to obfuscate transactions on the wire by using one-time accounts so that other banks not involved in the transaction know who is transmitting what from looking at the blockchain -- while at the same time providing enough transparency and security that banks can independently validate transactions they were involved in.
I am just jumping into this for fun to play devil's advocate. "Trivial" is probably the wrong word to use, but I can see it being "trivial in some situations vs. how hard people imagine it might be".
If I were to file a lawsuit against you as an individual, or prosecute you as a government agency, then probably yes I could. First, I can probably simply compel you declare them during discovery. I will allege that you're engaging in fraud and money laundering as part of shielding your assets against a debt that you owe me (let's say). I will explain that you've purchased bitcoins on an exchange for the purpose of shielding and hiding your wealth. (You're declaring bankruptcy in order to get out of a debt.)
We'll discover how much you've transferred to the exchanges that you do business with by compelling you to declare it, or by subpoena. You're now in the position of proving what happened to that money, where it went, and demonstrating that it's not still an asset. Enough people have heard about bitcoin and Silk Road on the news that there's a good chance a judge will see this as shady behavior, especially if you're not cooperative in revealing information.
If you have purchased bitcoin mining hardware and mined the blocks yourself, then we'll probably find that out during deposition. I'll figure out how much hardware you have and what its estimated hashrate is. You can keep the actual bitcoin addresses secret from me, but the fact of the wealth created by them will not be secret from a court, and you'll have a steep hill to climb to keep the bitcoin addresses and the amounts you've earned secret without contempt of court. If you've transmitted nontrivial amounts of money that's obviously going to a bitcoin exchange, or left any trail of financial records of purchases of bitcoin mining hardware, or if you disclose by answering honestly during deposition, and refuse to explain what's happened to those coins, then it will be obvious to a court that you're engaged in black market activity, money laundering, or are shielding your assets. An honest citizen doesn't hide their bank account information and activity from a court in circumstances where it's relevant.
If you have left no connection whatsoever between your traditional identities like your bank accounts, and with your bitcoin identities (like through an exchange), then it will be harder, especially if you lie under oath and claim you don't have any. For example: maybe you got into bitcoin in the early days when you could mine on a PC. You held onto those coins for years and are now a bitcoin millionaire. You recently bought mining hardware in a server farm you've never seen with those coins anonymously, and you're now mining more coins. This you could probably keep secret. If there's been any conversion with USD without a lot of anonymity, then there's going to be an obvious trail that will show up in a civil or criminal investigation.
Now, to be fair, I cannot find this information out about you, you being an anonymous person I know nothing about over the Internet. However, I also have no cause to care. If I have any cause to care, like if we have business dealings, then I will have enough information to leverage this process against you. Furthermore, it's not like I can find out your bank account number or credit card number either. The point I'm making from this is that bitcoin is not more anonymous than those instruments unless you've gone really far down the opsec road, buying mining hardware in cash, and engaging in money laundering to keep these secrets, lying under oath, etc. But to be fair that is an advantage. If you buy bitcoins in cash, you can spend them online anonymously. I would not describe any of this as "trivial" necessarily, but at the same time, I also feel like if you and I were to get into any legal altercation involving finances and money, I could probably do it. Though you do retain the power to keep them secret by risking contempt of court.
Probably very little. Still, if I were a bank, I would want to be on top of researching anything that could someday replace me, including the blockchain.
Protect against tampering/provide evidence of tampering. That said, calling that "a blockchain" is really pushing it, because the anti-tamper properties are provided by Merkle trees alone, and those have been around far longer than the blockchain.
> And there's a lot of weird hate towards bank on HN.
I think that's because of the egalitarian ideas readers of HN subscribe to (is that a big leap of faith?). Bankers getting new fangled tech is watching the f......s who brought the world economy to its knees getting shiny new toys. Hard to be happy about that.
"Egalitarian" and "HN" do not belong in the same sentence. Unless the sentence is "The zeitgeist of HN tends to a profound contempt for the ideas typically associated with egalitarian thinking".
We practice a strange perversion of meritocracy. Sure. But there are a number of egalitarian ideals we do subscribe to. We're really a culture built on self-enhancement. Unfair advantages take people out of a self-enhancing mode. They just start seeking advantages. We don't like that.
Meritocratic, perhaps. HN is pretty Libertarian, and Libertarianism is the polar opposite of egalitarianism. It's the equal opportunity vs equal outcome divide.
Well, part of Libertarianism is opposite of egalitarianism. Left-Libertarianism isn't, and I'd wager there are quite a few around here, which may be confused with their right-wing counterparts when speaking about many issues regarding the State.
> HN is pretty Libertarian, and Libertarianism is the polar opposite of egalitarianism.
That's a pretty bold claim. On HN we see the recurring "growing inequalities are bad"-posts whining all the time. Libertarians are not against inequalities in the first place, so I'd say HN is rather not too Libertarian, while there are certainly more Libertarians here than on other communities.
Sorry, there is nothing about equal opportunity in Libertarianism. If anything, it is against it.
Libertarianism does nothing to equate chances of new born human. All that he is and will be is mostly determined by family he is born into. Example: HN entrepreneurs were mostly born into rich families.
Egalitarianism is about equality of opportunity. I.e. you will not be prevented from becoming rich as fuck, but expect that passing all that wealth of money onto your children will be a bit harder and other children's education will be paid from your taxes.
And the third beast: communism. Equality of opportunity and outcomes.
It's sad how (in the US) right-wing people have managed to completely overshadow the long and rich history of Libertarianism, both in Europe and in the US - though to be fair, liberals had already done to the same to them :)
Maybe those with non-conforming views simply decide to keep their mouths shut for fear of some kind of retribution which could be either written or downvotes by the majority that are reading a particular story or comment thread.
I think that's a legitimate question. Long ago in college I met some libertarians handing out literature. I'd say they were thoroughly egalitarian ("believing in the principle that all people are equal and deserve equal rights and opportunities"). One of their core points was that authoritarianism (what I'd call the true opposite of libertarianism) tended toward deep inequality.
But the modern American version of libertarianism seems to have become something very different than what I saw of it in the late 80's.
> I'd say they were thoroughly egalitarian ("believing in the principle that all people are equal and deserve equal rights and opportunities").
For some (not all) libertarians, "equal rights and opportunities" means that a healthy college grad and a schizophrenic homeless person have an equal right to apply for the same job, and if the latter can't get a job or any support and starves to death in the street, society's hands are clean--after all, they had the same opportunity as anyone.
"In its majestic equality, the law forbids rich and poor alike to sleep under bridges, beg in the streets and steal loaves of bread."
> For some (not all) libertarians, "equal rights and opportunities" means that a healthy college grad and a schizophrenic homeless person have an equal right to apply for the same job, and if the latter can't get a job or any support and starves to death in the street, society's hands are clean--after all, they had the same opportunity as anyone.
The libertarian retort is that society's hands are not clean. Whether a homeless person starves without government assistance is a reflection of society. You are not obligated to let it happen just because men with guns don't force you not to, and it is a reflection on you whether you do or not.
And, so the libertarian argument goes, in order for the homeless to be fed with government assistance you need a majority of citizens to vote for programs to help the homeless. But if you have the support of a majority of citizens then they need only vote with their wallets and no government action is required.
More than that, when you put the burden of helping the poor on the government instead of individual members of society then when the government fails to do what is necessary each person need only shrug and claim "I paid my taxes" to be absolved of their inaction in the face of it.
> And, so the libertarian argument goes, in order for the homeless to be fed with government assistance you need a majority of citizens to vote for programs to help the homeless. But if you have the support of a majority of citizens then they need only vote with their wallets and no government action is required.
> More than that, when you put the burden of helping the poor on the government instead of individual members of society then when the government fails to do what is necessary each person need only shrug and claim "I paid my taxes" to be absolved of their inaction in the face of it.
A lot of important things are not well-suited to crowdsourcing and individual choice, though. The canonical example is roads; if enough non-drivers decide they're not interested in paying for interstates that they don't use, then the roads fall into disrepair and everyone suffers--including the short-sighted non-drivers who didn't realize how dependent they are on cheap cross-country shipping for the goods they purchase and consume every day.
Our current social support system has a lot of big problems, but I don't have such a rosy view of humanity that I think individual charity wouldn't be even worse.
> A lot of important things are not well-suited to crowdsourcing and individual choice, though.
Now you're talking about a whole different class of thing. How to fund roads is a completely different problem from how to fund homeless shelters and soup kitchens.
And there is a bit of a conundrum there. A libertarian solution to building roads is: People who own local land will get together and fund roads because it makes their land more valuable, and then to prevent free riding they exclude other local land owners from using the roads unless they contribute.
The main criticism of this (and libertarianism in general) is that now the road building organization is a de facto government. Whoever controls the roads or any other critical infrastructure has a monopoly that allows them to impose any rules they like on everyone else, with no obligation to abide by libertarian principles of governance.
But it has a simple solution in practice: Don't be an absolutist. Have the government build and maintain the roads and similar infrastructure. It can do that without incarcerating millions of people or inducing global financial turmoil through unwise policies.
> And, so the libertarian argument goes, in order for the homeless to be fed with government assistance you need a majority of citizens to vote for programs to help the homeless.
Not all libertarians find democracy to be legitimate.
Saying the bankers "brought the world economy to its knees" in 2008 isn't that much better than saying the tech industry did the same with the first dot-com crash. It is a huge oversimplification and assigning blame in that way dissolves everyone else of their responsibility in the situation. It means we haven't learned our lesson and the process will simply repeat itself at some point until we do.
I realize this sounds like I'm ducking your question, but it starts to get into the oversimplification comment I made earlier. The answer depends on what exactly you mean by dot-com bubble and banking crisis. The late 2000s recession was certainly worse than the early 2000s recession, but both involved a lot more than simply the banking crisis and the dot-com crash respectively.
This hate is well earned in my opinion and the global banksters worked very hard to attain this privilege and therefore no one should fight them and try to take it away from them.
We believe in meritocracy, egalitarianism and equal opportunity disdain for all bad people after all.
Not my field however I feel you have a mis-understanding.
You are talking about a shared ledger system, then saying that bitcoin has no part of it.
Bitcoin is the token of PoW. So all the miners confirm transactions on the blockchain and in turn are rewarded with bitcoins. This keeps the miners doing their job, and the main reason the bitcoin ledge is immutable.
If you remove the bitcoin from the ecosystem then it will be down to the banks to secure their own blockchain with their own mining pools at which point the banks control all the mining, you lose the trusted status of the ledger. As with the main block chain if a miner gets 51% of the mining then they can do a number of attacks to change the shared ledger.
What I am getting at, I do not see how blockchain technology works without a token to validate it (be it bitcoin/bankcoin/englandcoin/fuckcoin. However if that token is only controlled by the banks are we not back right where we started? with banks having a private ledger between themselves that they can change.
Blockchain/bitcoin work because the people securing the network have an incentive to keep the system going. The only people interested in securing the banks blockchain will be the banks, unless they offer their customers mining equipment, but the day a bank shares its ability to mint value is the day I prove that well something unthinkable.
The banks blockchain will just become another private database that is not secured in the real world in anyway and in turn losses the status of an immutable ledge.
Its a private blockchain, their is a usecase. The its enougth for the banks to trust each other, it might not be to prove to 'the public' but within the private agreements of the banks it counts as trused.
The problem is that you want a revolution and this is evolution.
> However if that token is only controlled by the banks are we not back right where we started?
They never wanted to change it.
For them it might just be about improving the verifiabilty compared to the current system. They need not have broader aims then that and a blockchain between banks can help with that.
What happens when a smaller bank that isn't a member of this chain tries to do business with the network? Do these smaller banks lose-out competitively by not being a member? Who is the governing body approving access - the competition?
>And there's a lot of weird hate towards bank on HN. I know they're not great, but it's really not helping the conversation to just say things like "woooo banks are scary!"
Well, in fairness, one of the last times a bunch of banking organizations joined forces on some shiny new innovation was MERS, the Mortgage Electronic Registration System...which facilitated the fraud that helped cause the housing crisis.
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https://en.wikipedia.org/wiki/Mortgage_Electronic_Registrati...
That means four million families' homes illegally stolen from them.
Don't pretend this is some goofy hippie fuck-the-man thing. When someone commits that much theft, a rational person doesn't leave them alone with the silverware.
No, what this does is reduce the need for clearinghouse entities, such as Depository Trust Company, National Securities Clearing Corporation, the Fixed Income Clearing Corporation, and The Options Clearing Corporation. There's a back-end bookkeeping system in finance which tracks who owns what. That's where blockchain technology applies. Banks can't do this themselves, because there's a mutual mistrust problem. So there are all those clearinghouse companies, which maintain the databases.
This is a great observation, I didn't realize that clearinghouses were a thing. John, have you thought about what other backend bookkeeping systems could benefit from using blockchains?
So the solution is moving to a new method and process driven by the banks, and with the removal of third party oversight? No thanks. If there is a system, it can, and eventually will, be gamed.
I'll don't buy this BS about the block chain, when the power to verify it centralizes power in the hands of those that can afford the most computing resources.
Being the people or group who can afford "the most" computing resources is not enough, at least as that expression is commonly used. To make an analogy, Bill Gates is the US citizen with the most wealth, but you'd need to join hundreds or thousands of people to gather 50+%, which is what you need to launch the attach you're mentioning.
Also, it's not true that only they would get the power to verify it; everyone can verify the transactions on the blockchain. What they would gain is the ability to double-spend their Bitcoins, and not without getting noticed by the rest of the network.
Well if each block has to be signed with 50% of the banks that reduces trust by some degree, however this still can be done more efficiently with a relational database.
That's what they have now. A third party clearing house (presumably using a relational database) that is the central authority on all intermediary transactions. Creating a blockchain is about removing that third party and instead breaking the trust up between the participating banks.
Weird hate? Most of the problems we are facing now with the economical system is because banks ARE CREATING MONEY OUT OF NOTHING and then decreasing the actual value of EVERYTHING, and moving power to those who are in good terms with them, effectively setting in stone a rule of power system that enslaves people to their home mortgages and jobs they dont want to work on.
"Weird hate", yeah it might be weird if you don't understand what they are doing. And they are masking it in this veil of complexity, when in reality it's very simple.
Banks don't require pseudonymity. If you remove pseudonymity from the list of requirements you no longer need mining, you can just run any consensus protocol to agree on and cryptographically link pieces of information.
Sure, but if you're reaching consensus on a cryptographic chain of transactions, that's exactly what a blockchain is. Mining is not an integral feature.
Mining is the core feature that allows Bitcoin to work without knowing all the parties. Reaching consensus and cryptographically protecting information is not a very hard problem if you know the parties.
It's not cryptographic protection of data. It's the cryptographic audit trail that's useful. No one can break the rules of the system except for validators, and everyone instantly knows when a validator breaks the rules so they can stop trusting them.
I meant integrity protection, i.e. ensuring that no one can unilaterally modify the information afterwards. Hash chains and trees are at least 35 years old.
Yes, but Bitcoin is a full system already designed for this exact purpose. The only real issue is the waste of proof-of-work, but that's proportional to the hashing power given to it; if the chain is private, a single server per bank would suffice.
None of what you said makes any sense. No bitcoin isn't designed for private ledgers, it's the exact opposite, an innovation to make global, public, decentralised/distributed (you can argue the semantics a bit here), trustless system without a dependency on any particular set of gate keepers, while keeping alive some semblance of privacy/pseudonymity. This private banking database requires none of that and is the opposite of what bitcoin was designed for. And the gigantic waste of proof-of-work is completely unnecessary, and forcing the use of it regardless by keeping a 'single server per bank' is insane, it's literally a waste of money. Not only that but it doesn't even achieve anything you want as it creates a false sense of security, after all what stops a bank from simply having more than 1 server and blowing all the proof of work from anyone else out of the water and dictating the entire database? Well guess what, the exact same thing that obviates the need for a proof of work system in the first place.
Bitcoin is the dumbest possible technology outside of the context for which it was designed, in which it appears to be the only viable technology and works incredibly well. Running a private blockchain with a set bunch of gate keepers is simply ridiculous.
My point is: Bitcoin is a well-tested shared ledger, with plenty of eyeballs trying to exploit and secure it.
Does it make technical sense to run Bitcoin for a private ledger? No, it does not, you're absolutely right.
But does it make business sense to waste a few CPU cycles mining, compared to wasting probably hundreds of thousands of dollars developing custom software for this purpose, which will still be less tested and probably more insecure? I'd say it does.
The key advantage that the blockchain provides is distributed consensus-finding. It's the best known solution to the Byzantine generals problem to date. Pseudonymity is besides the point.
Paxos and Raft are arguably the best known solutions to the Byzantine Generals problem not bitcoin. They provide stronger guarantees Bitcoin which allows forks.
What Bitcoin provides that those algorithms do not specify is a cryptographically verified audit trail. However as some have mentioned here if you don't need the pseudonymity as these banks do not then you could add cryptographic auditing to one of those protocols. Bitcoin's proof of work is not a requirement in that case.
I think it would be more accurate to say that what Bitcoin provides that Paxos and Raft do not is trust-free consensus. The members of the Paxos parliament all trust that the others are properly following the protocol, but they still have to deal with all of the pathologies of an unreliable network.
Bitcoin has to deal with unreliable networks and dishonest nodes who spend money multiple times. It handles that, at the cost of huge computational overhead.
Actually since Paxos is meant to solve the byzantine generals problem they don't necessarily trust that the others are properly following the protocol. But the algorithm guarantees that as long as no more than N others are dishonest you can still reach consensus. Bitcoin does the same where N's value differs but with far more wasteful computation and less strong guarantees.
Perhaps you're thinking of Byzantine Paxos (not regular Paxos)? I'll have to read up on that to determine its relevance to the double-spend problem. One concern I'd have is how parliament membership is determined (e.g. what about Sybil attacks?).
Interesting. Another way to read this is that trust between banks has deteriorated to the point where they feel that they need a blockchain -- a decentralized shared ledger -- to verify certain transactions with each other. Because otherwise a nice centralized, shared ledger is much easier to build, analyze, maintain, and secure.
Banks don't operate on trust -- they operate on checks and balances and intermediaries. For example, when you spend your money using a Visa or MasterCard, the payment processor (intermediary between your bank and the merchant's bank) takes a cut for helping remove the need for trust from the transaction.
LIBOR doesn't demonstrate that banks rely on trust. None of the involved banks or brokers trusted that anyone else was actually being honest about LIBOR submissions or predictions.
Even if there were any system safeguarding LIBOR whatsoever, a blockchain wouldn't have helped. The reason it was so easy to falsify your bank's LIBOR submission was because they were essentially made up. Submitters produced the number by talking to brokers and then making a decision. A blockchain wouldn't have made any difference. You'd put your submission on the blockchain, and you wouldn't be able to change it later if things didn't turn out how you liked, but you had made up the submission anyway. Nobody would ever be able to point to some number on the blockchain and say definitively that your reported LIBOR figure for today should have been X but in fact it was Y and therefore you're a crook, because the figures were never verified. They'd only be able to say "There's no record, so you could easily have just made up the number," and you'd say "I did make it up, that's how you do it, everyone else made theirs up too," and that would pretty much be it. The only way to catch someone being dishonest was to find records of employees talking about it; the Hayes case and others like it are based on the fact that bankers incriminated themselves by discussing the manipulation with each other.
By contrast, when banks transfer specific quantities of money, they absolutely are not relying on a trust-based system. I owed you X, I sent you X, and I swear to God if you come to me later and say I only sent Y and I owe you more dosh there will be a fight. If you produce internal records kept by your accountants that say I totally only sent Y, no bank would take your word for it under any circumstances. Similarly, if there was a mixup and some of my assets ended up with you by accident, my chances of convincing you that I should get them back are nonexistent if I don't have some outside system demonstrating that I'm not lying. In real life, financial institutions rely on third-party businesses to be that "outside system." A blockchain would help solve our problem without those businesses. I wouldn't need to trust you, the transaction would be recorded on our blockchain, and if either of us thought the other could falsify the blockchain we wouldn't have agreed to use it. If the blockchain says I really didn't send enough money, I'll probably say something about a technical glitch and give you the cash while I grumble about how much I hate technology. Neither of us have to trust each other any more than we already don't, and we don't have to involve some kind of trust or clearing business.
> Unless you can list here the "checks and balances ...
The key check on Libor was that it took a pretty big conspiracy to fix it. There were approx 16 banks submitting numbers, and the process was to rank those numbers, drop the top 4 and bottom 4, then average the rest.
So once you have 5 banks in your conspiracy you can sway the final result by 1/8th of the amount you lie by.
And these numbers are quoted in hundredths of a percent.
So, yes there was trust, but it was of the institutions in their people. They did not expect that such a big conspiracy could be mounted, for so long, without anyone calling foul.
(Well, some folks did report to the Bank of England that Libor was essentially fiction, but arguably that was quite late)
EDIT: And there is a balance, too. The biggest market is "interbank", i.e. banks offsetting their own cash and risk with other banks who have the opposite position. On any given day, some banks will be net payers of Libor and some will be net receivers. So, as institutions, they aren't all going to lie in the same direction.
This doesn't help you if the lying is done by individuals, ignoring the impact on their own institution, encouraged by things like free coffee.
I think that's very much overreading it. I read this as them seeing the boffins saying "OMG BLOCKCHAIN" and the pop press articles glorifying Bitcoin. And then saying, "Well, let's hedge our bets and put a tiny amount of money into learning more about this just in case it really does matter."
As you say, though, the shared ledger is easier to build, so my guess is this won't amount to much.
Banks working together is a scary idea. This was the notion atop which the recently disbanded Payments Council (UK) was based - an organisation that failed to deprecate BACS/CHAPS, had to be told to implement Faster Payments, came up with the 'innovative' pay-by-mobile-number scheme, and replaced swipe & sign card payments with a JavaCard that knows it's own 4-digit PIN.
Feast your eyes, ladies and gents. What you are witnessing is the formation of a cartel.
Banks are already working together in a lot of fields.
Before it's IPO, Mastercard was owned by 25k+ banks; Visa is still owned by 21k+ banks; SWIFT, the network behind transactions, is owned by banks too. That's just three examples I know but i'm sure you can find a lot of them.
What do you mean by 25k+ banks? There were 25,000 different banks that owned Mastercard? Or is a 25k+ bank a particular type of bank.. Not come across that term before.
"Prior to its initial public offering, MasterCard Worldwide was a cooperative owned by the 25,000+ financial institutions that issue its branded cards." [1]
It's not just technical though. BACS/CHAPS (payment systems that take days to move money and cost about £30 a go) would never die while banks had control of common technical standards. They're absurd. These standards mandate that each network hop include a holding delay measured in tens of hours. From light speed to days and why? Because it's a cash cow they'd be insane to mess with.
"So they keep trying to re-inject points of control, and thus points of vulnerability, into blockchains, e.g. through 'permissioning'; but this nullifies their main benefits, which come from removing points of vulnerability."
It makes sense what Sa.... (cough) Szabo says in that article... If the big guys really want to build a true "Internet of Money/Assets" two basic things will be required:
1. A common standard
2. Global openness
Surely they can build their own walled garden, but I think they're missing the point with this. With a walled garden you're just taking 1/100000 of the HUGE pie, improving current financial processes but not coming up with new radical innovations. A simple payment/monetisation standard embedded in objects (IoT) would be an example of a bigger piece of pie.
IMO they should just push for an open standard and use private ledger contracts on top of Ethereum, but I doubt they'll go this way. Most likely they'll just fork and run with it.
What's the iot reference for? How does putting Bitcoin implementations into random pieces of plastic (like a "smart cup") figure into your analysis at all?
If you've been following the crypto 2.0 space you'll know that a lot of ideas have popped up for IoT and embedded smart contracts. For instance, washing machines or fridges that detect that are running low on X and automatically place an order for delivery. IBM and Samsung have been exploring this kind of IoT applications with Ethereum's blockchain [0].
A private blockchain (like the one the banking industry presumably would deploy) can do 1 of 1000000 possible applications for the technology, but a global and open blockchain could channel all under the same protocol (something like TCP/IP), maximising interoperation among player in several industries.
I'm just trying to reflect that these 9 big guys could be making a short-termed shortsightedness mistake trying to protect their business placing a fence. As Szabo said, it's the moment to be more open.
Doesn't some of the blockchains security come from having a large number of players maintaining the chain? Isn't there a vulnerability that depends on someone taking over a large enough percentage of the infrastructure? Wouldn't having a handful of entities doing the majority of the transactions allow them to commit fraud, or alter the ledger?
This is basically the path you go down when you start to consider 'non-bitcoin' blockchains. Sure, you can do it, but if you want security, you go where the hashing power is.
Network effect = one blockchain to rule them all
Well, at least you'll have to connect in with the 'one blockchain'. Sidechains would be a great way to address this. It's important to remember how early days Bitcoin is, and cryptography and blockchains in general. They're still well within a research phase; it's hard to say what sort of solution they'll come up with.
Maximizing hashing power is only needed in a public blockchain. If the pool is closed, you can force each node to provide a fixed power, and monitor the total power. If it increases over nodes*power-per-node, all nodes shut down automatically.
I was talking to one of the bitcoin core devs and his opinion was that purely in terms of power consumed, litecoin could be more secure than bitcoin. Bitcoin certainly has the network effect in terms of usage going for it.
If only trustworthy entities are part of the network, this isn't much of a problem. No large financial institution will launch an attack against their own network.
I think there's a difference between rigging numbers and launching an attack on the network. All that it would happen is that the other peers would detect the increase on hashing power and shut down the nodes.
The problem with a public blockchain is that you don't know who is hashing. On a private network, you can tell each node to only hash at a certain rate, and monitor the total rate to detect cheats.
If they do end up using something like Ethereum, the network would be the same network that everyone uses, so the number of users would hopefully be much larger than, i.e. the 5 banks listed or whatever.
Rutter said the initial focus would be to agree on an underlying architecture, but it had not yet been decided whether that would be underpinned by bitcoin’s blockchain or another one, such as one being built by Ethereum, which offers more features than the original bitcoin technology.
Once that has been agreed on, Rutter said, the first use of the technology might be the issuance of commercial paper on the blockchain.
Can anyone speculate on why they would begin to issue commercial paper?
Probably because they're very short term forms of debt, so if the system has issues it doesn't exist in for 10 years or however long the instrument lasts.
> so I'm okay that the banks were undermining western governments in the interest of free trade.
I say this as someone who used to work in drug policy reform and strongly opposes the drug war: Providing money to cartels isn't exactly a noble proposition either. Banks that do that really do have blood on their hands. Between 2006-2012, over 100,000 people died incredibly gruesome deaths in Mexico alone since 2010 at the hands of these cartels[0].
I'm not going to defend the drug war, but I'm not going to defend banks that willingly funnel money to them either. And I'm not going to claim that providing money to cartels actually undermines the drug war, in any meaningful sense. The cartels are, ironically, the largest profiteers of the drug war, right alongside the LEOs and correctional facilities that enforce drug laws. Pumping money into the pockets of the drug cartels only further entrenches the current system; it does not provide pressure to dismantle it.
There are plenty of great ways to work actively to end the drug war. Funding drug cartels (or enabling their business operations) is not one of them.
[0] The number of deaths in Mexico have dropped slightly since then, but only because the violence has moved further south in Central America
> There is plenty of pressure in Mexico to decriminalize/legalize drugs as a result of cartel violence.
First, what Mexico wants has (unfortunately) very little connection to what the US will actually do, and it's the US's drug policy that matters here.
Second, this is like saying that the arrests and drug-related violence in the US creates pressure for legalization. It may in a way, because it raises the stakes, but that's not necessary to create pressure for change. And it's a rather horrible way to do so, because it involves putting people's lives at (even more) risk in the meantime. On top of that, it also further empowers the people who profit off of the status quo, providing them with even more money (and therefore power and influence) to maintain the status quo.
For comparison, it's a good thing that police violence has gotten attention recently, which may ultimately lead to substantial reform. But that's not to say that facilitating (and profiting off of!) police violence in the US is a noble act.
We can argue about whether the connection is nonexistent or simply 'very weak', but my point remains that it's hard to defend a profit-hungry bank funneling money into the hands of violent murders so they can profit off of more murders, all on the grounds that it will eventually translate into fewer murders later on. Especially when there are much more compelling ways of addressing the issue directly and immediately.
The assumption of the decriminalization/legalization stance is the drug market has a demand that currently is only supplied by murderous drug syndicates which is for the most part created by the effects of prohibition.
Drug War is immoral because drug laws almost exclusively enforced on the poor and minorities. Big banks getting away with funneling money to cartels is the heart of why the drug war is immoral!!
Someone sold you something if you think free trade is a beneficial condition worth striving for. It benefits a handful of major corporations at the expense of the populace.
I'm quite certain that's sarcasm. If it were actually true you'd have already googled the subject and be quietly reading right now.
Edit: what the hell, I'll play your game.
"Critics of the TPP reference the failures of NAFTA, which was first conceived during this period by the original champion of trickle-down, Ronald Reagan. Leading up to the 1994 elections, NAFTA garnered bipartisan support, but lone wolf, Independent candidate Ross Perot warned of the "giant sucking sound" that America would hear if NAFTA passed and American jobs were drawn south. Global Trade Watch's assessment of NAFTA's "20 year legacy" demonstrates just how right Perot was. An estimated one million jobs have been lost to NAFTA. It's put downward pressure on wages, and exacerbated America's income gap. And while pre-NAFTA, the U.S carried a trade surplus with Mexico, and was just $26 billion in the hole with Canada--as of 2014, we had a combined trade deficit with both countries of $177 billon."
So, in summary: it suppresses wages, costs jobs, and exacerbates income inequality. Market efficiencies created by globalization also have a tendency to drive all but the largest players out of any given market. Surely you don't claim lowered wages and pressure on small to medium sized businesses to try to compete on a global scale are in any way beneficial to the larger populace? You don't honestly believe having access to cheap goods is more beneficial than plentiful, well-paying jobs?
I wasn't being sarcastic, I wanted to hear your reasoning so I could attempt a rebuttal and here it is:
With respect to your argument, I would consider Mexicans and Canadians to be part of the 'greater population' I was referring to. Sure, globalization is terrible if you're used to making $20/h with no education in a factory in Detroit. Globalization is great if you're a Chinese peasant who can now earn a meal in an hour at the factory instead of 12h of subsistence farming.
Overall I'm pretty sure it's a net positive to humanity at the expense of the American lower-middle class.
I don't have a stake in this discussion either way, but it seems to me that you're not quantifying the tradeoffs properly (not that I expect you to, really.) It could very well be the case that the improved earnings of that Chinese peasant are vastly disproportionate to the loss experienced by the factory worker in Detroit. The middle-man transferring the money from one market to the other could be pocketing most of it, leaving the majority of people worse of and in a far weaker political position.
And while it may seem to be a net positive to humanity, that could very easily be a relativistic perspective that breaks down in the long term.
So, do you believe that there should be no trade allowed between countries at all? What is the right amount of trade, and how did you determine what that is? Is it possible that your determination is wrong?
Of course it's possible that I'm wrong. All I'm saying is that it could go either way. Converting high-quality work for few in exchange for low quality work for many is not an inherently valuable proposition. (Because it often creates extremely-high-quality work for a very few.) You need more information to determine if it is the right thing to do.
If you believe that trade hurts workers, shouldn't we also cut off trade between the states?
I think it's hard to deny that in general free trade produces net benefits. (If it didn't, then we would presumably each make all of our own stuff and never trade.) I could well believe that a particular trade deal has problems or is even net bad, and I don't have a strong opinion on NAFTA. But but even if NAFTA is bad says very little about whether all trade is bad.
I said unregulated trade hurts workers, not all trade.
Stating unregulated trade hurts workers isn't a "belief". It's not like it's a faith-based assertion lacking any real world evidence to support it. Trade tarrifs have been used as a revenue stream for the federal government and as a protective measure for domestic industry since the 1700s.
The heart of the issue is working class humans benefit from a certain level of market inefficiency. Having many small local concerns engaged in a a particular market segment is inefficient as each has to capitalize equipment and labor force to do essentially the same thing.
When the market "optimizes" one of two things happen, wages in that market segment make a run for the bottom, and smaller concerns either consolidate through a series of mergers and acquisitions or they are squeezed out of the market.
What you're arguing in favor of is one of the major market forces that is driving income inequality in the US. Are you proposing that trickle down economics actually work?
I am not proposing that trickle-down economics work.
Again, if you believe that unregulated trade hurts workers, shouldn't we stop trade between the US states? My guess is no. Because it's not like your proposing an optimum economy size for maximum worker friendliness. You're just opposing a kind of change from the status quo.
I agree that too much industry consolidation is a problem for workers. But I don't think that's a problem of trade. That's a problem that comes whenever you a) increase disparity in power between workers and employers and b) decrease opportunity to switch to a different employer. If we had a situation where no countries traded but each country allowed monopolies to form, workers would be screwed. If, on the other hand, we have free trade but vigorous enforcement of anti-trust and merger review, I think workers can do pretty well.
I also agree that increasing trade can shift what industries do well in particular locales, which is good for some workers but bad for others. The obvious solution there is not to protect the inefficient jobs, but to tax the people doing better (some workers, all consumers) and pay for excellent retraining, and to pension off the workers who can't be retrained, and/or fund nonprofits to employ them doing something societally valuable but not profitable.
As an example, look at the American auto industry. As a Michigander, I know how devastating the rise of import cars was. But honestly, that industry needed some devastation. They produced low-quality, low-reliability products and then milked consumers on repairs and flim-flam sales techniques. They did provide jobs, but often pretty terrible ones. And none of this was necessary; it's just that consolidation (which, remember, happened without trade) made a cozy oligopoly, leaving management to focus on exploitation. 40 years later they are still struggling to break this pattern, but at least now Americans can buy decent cars at reasonable prices.
Listen to the pain in the GM workers' voices. Listen to the change that came from working for one of those foreign companies. And then tell me again of how workers benefit from economic inefficiency.
"..pay for excellent retraining, and to pension off the workers who can't be retrained, and/or fund nonprofits to employ them doing something societally valuable but not profitable."
You'll excuse me if I don't find anything obvious about this. We can't even get political consensus in this country that healthcare is a basic human right that everyone should have free and equal access to and you're proposing that a massive program of worker reeducation and pensioning is credibly possible?
I parse this as you saying "Free Trade is great if you live in a tiny socialist country with sufficient budgetary reserves to afford continuous retraining of workers and the political will to make that investment in labor force." So...free trade is great for Finland?
It's obvious in the sense that free trade advocates regularly say this should be part of what happens.
And actually, it's what happens in the US. It's a pretty common thing to go along with trade bills. [1] It happened again as recently as June. [2]
I think we can agree that there should be more, and that we should do more for all sorts of workers, not just those affected by changes brought on by particular trade bills. In which case, it sounds like your problem isn't with free trade, it's with the US's generally poor treatment of workers. I'd agree with that, but I think more trade helps the situation in that it benefits consumers, and people are more willing to be generous when they feel richer.
NAFTA isn't free trade. That's the lies the capitalists play with. NAFTA is a mechanism for heavily regulating trade, setting quotas, etc - in essence, state-granted monopolization.
I read this as "we, the banks, want our own blockchain which we control and you should trust". Only you shouldn't trust it because the whole idea of a blockchain is that it cannot be influenced/controlled.
No. It is unlikely private citizens will even have access to mine on the banking blockchain. Banks are looking at using it for intra-banking ledgers and commercial transactions. Longer term, it may replace the outdated ACH clearing house.
In any blockchain network, users implicitly trust the developers of the software. If you use Bitcoin, you trust that Gavin Andresen & the core developers are making changes to the client software in the best interest of the network. If you disagree with any implemented changes (say they decide to increase the hard limit) then you can either refuse to update your client or move to another currency. Refusing to update only works if you have enough other users to stay on the same client version as you.
In this case, assuming each bank has equal representation on designing/maintaining the blockchain, the developers are the users, so there is no need for implicit trust. It'll just make it easier to do transfers between banks without a 3rd party.
Barclays and UBS have been both recently giving the eye to Ethereum. My bet is that they are going to go for Ethereum, maybe with a fork a la IBM, and put it behind a firewall.
So is this actually a blockchain in the Bitcoin sense, or just a cryptographically-verifiable ledger, e.g. something based on a Merkle tree? They're not running competitive proof-of-work or anything.
Or is it "blockchain" only in the buzzword sense of the term?
One very interesting difficulty for these guys is going to be deciding on mining, weighing costs and benefits and threat models..
Ethereum's current mining rates look like they would take a few thousand GPUs to fork the chain. Bitcoin's costs would be in the $hundred million+ range for a secret attack.
Edit: Most alt-mining proposals for enterprises do away with any ability to cost out mining attack vectors at all with some sort of trusted server, keys, etc.
While I am actually ignorant on the mechanics and architecture of blockchain, for the most part... I'm wary of anything a conglomerate of banks are doing...
Just look at the LIBOR debacle as one datapoint.
I have zero trust in big banks colluding on things that have the potential to affect finances for centuries to come.
Change my view?
Edit: anyone who down voted me hasn't been paying attention to the financial history of banks. Just because YC is tied to finance as an investment POV - you'd be deluded to think that banks aren't corrupt to the core. Do I really need to provide you with evidence, how about look at the last fifteen years for simplicity. Then look into BCCI which I doubt many HNers are even aware of...
HSBC? Wachovia? Jesus, do any of you know how fucking corrupt banks are??
That's not quite what I mean... Sure, banks ideally should do such things... I'm just saying given they centuries long track records... I still don't trust any of them.
"Secure" to banks means, only secure enough for them... I just believe that the future (think 25 years, minimum) is that every single activity of every single person will be tracked in detail to a level which we can't even understand now.
Wait until all your activity is then predicted and compared to actual to refine the tracking. And banks will be doing HFT based on the actual and projected minute-by-minute actions of billions of people...
What if a stock will fluctuate based on lunch time buying surges and after work happy hour, and birthday ties to kids having a birthday on Saturday and their social networks socioeconomic propensity to buy stuff for them last minute at stores r us?
> What if a stock will fluctuate based on lunch time buying surges and after work happy hour, and birthday ties to kids having a birthday on Saturday and their social networks socioeconomic propensity to buy stuff for them last minute at stores r us?
There's never been a better time to be an individual investor than today. You can buy index funds at costs that are constantly going down, not up. That's a good thing for the average investor.
> Who would you prefer to have designing and selecting standards for exchanging financial information?
I think democratically elected governments would be much better. Banks will design something that serves their interests only, merely overlooking other priorities in some cases and actively promoting their own in others. It's human nature, and also they have a long track record of sacrificing all other interests, including those of the global economy, taxpayers, consumers, and even their own clients.
No institution is perfect, but at least a much broader range of people have a seat at the table government.
Part of the interesting thing about Bitcoin specifically is that the incentive to participate and contribute to verification is itself baked into the protocol. This also enables distributedness. Is there some idea of how this will work in a more limited setting? What incentive will Charlie's bank have to validate a transaction between Alice's bank and Bob's bank?
For Bitcoin to really be a useful currency, it needs 1) full faith and credit of something; 2) mostly not proof-of-work; 3) sub-chains. Right now it is what I might call an "ur-currency". Paying for everything with the equivalent of a wheelbarrow of pennies.
Right now Bitcoin only has the backing of Bitcoin enthusiasts, which is a terrible way to start a currency. No sane person would invest their money in something that could become worthless if people decide that instead of Dogecoin, they want Kittycoin. Until there is some way beyond "it's Bitcoin" to know that Bitcoin will stay valuable (and "9 banks say it will have value" IS a bona fide reason here), I don't think it will ever have mass appeal.
Also, right now any actual economic value Bitcoin creates will be burned by mining CPUs. I think it's obvious that the steady state is that Bitcoin miners make zero economic profit, and all the transaction fees and blockchain rewards are simply turned into electricity bills (and thus, more indirectly, turned into needlessly lighting coal on fire).
Finally, from a more technical point of view, all this talk about "the size of the blockchain" is absurd. There's no reason that there needs to be a limit on the transactions. But when every transaction needs to be in a single chain, that's the only way. If we have some smart way of doing sub-chains, this becomes less of a problem. (I know some altcoins use this now, but the popular concept of Bitcoin is of a single definitive chain).
Is this really something all banks want? Well I don't want a blockchain for my private transactions where people can see what I pay for. I'm ok for it with larger interbanking transactions but not every company or bank wants to reveal every granular transaction. Or do I understand it wrong?
Banks don’t even process those large transactions directly – they just use the Giro system, meaning each bank tracks how much money they have in debt to every other bank, and every month, they actually send that money over. So these inter-bank transactions won’t actually contain stuff like personal transfers.
This is useful for trading settlements between the banks. A lot of what investment banks (as opposed to commercial banks) do is trading OTC securities. BlockChain reduces the amount of paper work needed to manage these securities.
Won't the blockchain get very large very fast on that scale though? (If I remember my BC theory right the chain remembers all past transactions, correct?).
Also - I'm assuming they'll essentially start a new system independent of BC. How will the initial blocks be divided?
From the article: “I think that these technologies will probably be post-trade,” he said. “I think savings are in the settlement side, in post-trade, in issuance, but not in exchange trading or OTC trading any time in the near future.” He added that R3 will soon announce a few more banks joining the project."
That makes sense. This replaces the need for a single trusted clearinghouse with a redundant, shared ledger. Confirmation occurs when a majority of the banks have put a new transaction into a block. Because the parties are not anonymous and new ones can only be added by mutual agreement, it's like a "proof of stake" system. There's no need for "mining".
Bitcoin has done a good job of validating a blockchain system as being secure against attack. No one has broken it yet. None of this, of course, does anything for Bitcoin as a currency/investment.
I don't think a large government has tried yet; this would create an interesting incentive for one to do so. See Operation Bernhard https://en.wikipedia.org/wiki/Operation_Bernhard with "on the internet" appended to it.
> Rutter said the initial focus would be to agree on an underlying architecture, but it had not yet been decided whether that would be underpinned by bitcoin’s blockchain or another one, such as one being built by Ethereum, which offers more features than the original bitcoin technology.
If you're curious, look at Ethereum. It's a blockchain without the Bitcoin network backing it.
Ethereum is a good example because it's proof of stake vs. proof of work. Other proof of work blockchains (e.g. Litecoin and Dogecoin) are very similar to Bitcoin.
Proof of stake makes a lot of sense for these organizations if they want to run their own blockchain.
As long as they start their own blockchain I think it would be interesting. Otherwise it's a bit of a hassle to use the current blockchain, I would use the same codebase and not start from scratch though since the code's been tried and tested, and as they said you can send messages through bitcoin as well already.
Maybe they would go for being cooperatively-mined with bitcoin (like namecoin etc). Otherwise they need a different proof of work. It's pretty dangerous to be an SHA2-alt and not be incorporated into bitcoin's hashing power.
Think of their current carbon footprint, which requires reams of paper to be printed and shipped offsite every single day. How many forests per day are consumed internationally?
Now, switch that to hydroelectrically powered mining datacentres. Net win? I suspect so.
This sounds exciting. My gut reaction was that the banks aren't going to use it for actually transferring money, but as a way to notarize transactions that will be acknowledged by the whole group. It does sound like a cool way to verify everything going on among a network of players.
And there's a lot of weird hate towards bank on HN. I know they're not great, but it's really not helping the conversation to just say things like "woooo banks are scary!"
//edit: A key quote from the press release:
> The group will collaborate on research, experimentation, design, and engineering to help advance state-of-the-art enterprise-scale shared ledger solutions to meet banking requirements for security, reliability, performance, scalability, and audit.
It's a shared ledger system! So, really no need to have it be bitcoin. It does make sense. It'll be great to see the confused looks on lawyer's faces when they try to lobby to change the blockchain history.