
Blockchain's Numbers Don't Add Up - petethomas
https://www.bloomberg.com/gadfly/articles/2016-09-08/blockchain-s-ambitions-thwarted-by-funding-resources
======
kbody
Fintech didn't have enough innovation analogous to the available capital in
contrast to other industries which were saturated. A seemingly holy grail
appeared and FOMO was at its peak last year or so.

I think the problem so far is that while they talk about blockchains (which in
my opinion and in the banking context is an immutable P2P database that no-one
owns but everyone obeys) they still are afraid of such concept because of the
loss of control compared to the current models.

They found a nice golden engine but can't decide what kind of vehicle they
want to make due to tradeoffs.

Banking context aside, the FOMO also happened with countless of clueless
"entrepreneurs" that jump on the blockchain-wagon without a clear and most of
all fitting purpose.

For the legit cases, you have legacy laws and systems being the challenge
which always takes a horrible amount of time.

~~~
JumpCrisscross
I don't think the loss-of-control narrative holds. One, global banks aren't
nearly that coördinated (within or without). Two, algorithmic and prop desks
are examples of banks willingly giving up control to make more money.

The issues with the blockchain are it's unpredictable and, as someone else
mentioned, difficult to trace responsibility on. That matters in a legal
system with a concept of fault.

Blockchain finance doesn't yet make sense somewhere like the UK or America
because our systems are too deep and storied. They _could_ have a leg up on
existing institutions in places like India or Italy or Russia, where the
current system is crap. That said, I'm still waiting for a blockchain start-up
to run its cap table on a blockchain.

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lucozade
What an odd article. It seems slightly perverse to point out that an existing
settlement system has blown 2bn on a platform that processes <500k
transactions per day for < 2000 participants. That might be true but it no way
follows that it'll be successful solely because it is so cost ineffective.

The article also misses a key point about the finance industry. You "only"
need to convince a dozen organisations that what you're doing is valuable and
they'll effectively force the rest to follow. It's also quite incestuous, get
a couple of big players interested and the rest will come looking pretty
quickly. Not only that, once they start relying on a technology they are very
good at ensuring that it gets backed well.

Now, I'm not suggesting that that's easy and I'm sure a lot of companies will
try and fail. But it most definitely does not need billions to get started.

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gaff33
> So a real-world example, then, that it takes 20 years for a new, efficient 2
> billion-euro post-trade system with full central-bank backing to start
> recouping its cost.

Right, so the article establishes that clearing systems currently are
eyewateringly expensive!

> It would be a miracle if blockchain could repeat this feat in a fraction of
> the time without similar backing or funding.

Well maybe - but the whole point of disruptive technologies (mobile phones,
uber, etc) is that they can do what existing technologies do at a fraction of
the cost.

Not to say that there isn't any hype in this space, but the pie is worth so
much that it's surely worth a decent chunk of R&D budget!

~~~
kakarot
Bitcoin / Blockchain technology isn't economically disruptive from an
investment perspective. It is socially disruptive in a way that has economic
consequences.

~~~
guylepage3
Check out Blockstack.org and the new decentralized web that allows developers
to build truly decentralized apps such as Twitter, Medium, Kickstarter,
Reddit, etc.

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elif
This title implies that a blockchain ledger somewhere resulted in an
unresolved descrepancy, most likely duping. The ambiguity specifically
includes Bitcoin to maximize sensation. Actually this article is editorially
criticising blockchains in general by using a popularity contest metric. What
a click-bait waste of bandwidth.

~~~
SamBam
This is in bloomberg.com, a news organization devoted to finance. The phrase
"numbers don't add up" is pretty standard to describe a poor business plan.

I don't think any of their regular readers were click-baited into thinking
this article was about some deep issue in the blockchain math, I don't think
that many of them have much understanding of what the blockchain, or "duping"
is. This article wasn't written for the HN crowd.

(To be clear, my very initial reaction was the same as yours, but then I saw
the context, bloomberg.com, and it was clear what it was saying.)

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dsr_
Customer service is the reason that headcount is actually a useful metric.

A settlement platform that can't instantly answer questions about what
happened, why it isn't doing what the user expects, how the API documentation
governs a specific version and you have a mismatch... is a settlement platform
that is not going to be adopted. Hopefully the customers discover this during
the integration phase, rather than being bullied by tech-ignorant executives
into using the trendiest thing.

This situation is aggravated by language barriers.

I am not referring to any specific settlement platform or tech-ignorant
executives, just to the general problem.

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pjc50
See [https://medium.com/bull-market/a-cynic-s-guide-to-
fintech-3c...](https://medium.com/bull-market/a-cynic-s-guide-to-
fintech-3cd0995e0da3#.bnkv62e5x)

If by "blockchain" we mean "distributed peer-to-peer append-only transaction
databases", then that corresponds to #7 on Dan's list, "Getting your act
together with respect to an industry standard where the industry has
conspicuously failed to do so". The use of a blockchain system for handling
certain kinds of money transmission transaction might be viable. The
irrevocability is still a problem for all blockchain systems: what happens
when a mistake is made or a key is leaked or lost?

~~~
wslh
> If by "blockchain" we mean _" distributed peer-to-peer append-only
> transaction databases"_,

\+ consensus.

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guylepage3
The blockchain is in it's infancy. It will be 30-50 years before it replaces
fiat currencies, if ever at all. The value is not in the currency but in
blockchain tech itself. Take Blockstack
[http://blockstack.org](http://blockstack.org) for example, we have built a
new decentralized web utilizing some of the blockchain's properties. There are
decentralized apps being built on Blockstack where users can access this new
web via the Blockstack Open Source browser. These decentralized apps possess
the ability to take out the incumbent apps we see today. Twitter, Medium, etc.

~~~
wslh
The problem is when you try to extrapolate the blockchain concept to old
financial institutions and you really mean "modernization". It is very
difficult to read articles about blockchains from financial institutions, they
are just forcing a concept and deceiving.

I have also a company in this sector. In our talks with banks, stock
exchanges, and government they say they want a blockchain. When we ask how
many nodes they will run, the answer is usually one.

I also believe the cryptocurrencies and blockchain concepts have a lot of
applications in Internet, but currently they mainly offer solutions for the
dark and lighter nets.

~~~
guylepage3
Sorry, what I was stating has nothing to do with finance at all. We've created
a new web. A truly decentralized web.

The blockchain should only be used for non-financial applications.

~~~
lucozade
> The blockchain should only be used for non-financial applications

Do you really mean it shouldn't be used in any financial applications or just
not to replace fiat currencies? If the former could you elaborate on why? I'd
be very interested in your opinion.

~~~
alanwatts
Perhaps it is because the fundamental nature of "finance" as a social
conception is inherently centralized.

So any purposefully decentralized/distributed system used for financial
(centralized) purposes becomes corrupted by default.

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ilaksh
I think for those blockchain based settlement systems to work they may need to
spend _less_ money, by teaming up with open source or delegating to a third
party or both. Either way, there are lots of competing systems, and
essentially they are different protocols for doing mostly the same things. So
for it to be useful there need to be less projects or more projects that only
integrate with existing systems rather than starting over.

Of course, this is a totally different discussion than the idea of a sort of
democratic public blockchain like bitcoin. Although the main challenge there
also is cooperation. Eventually that stuff will quite possibly put many of
these banks out of business.

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clarkmoody
Is this not simply the continued slide into the Trough of Disillusionment[1]?

Lots of buzzword-toting entrepreneurs lined their pockets with VC money in
2014-15. Many of those investments will have been bad ones (as with most VC
bets). Yet the engine of capitalism and innovation rolls on. The Bitcoin genie
is out of the lamp.

Time to settle in for $N months/years of negative PR & industry consolidation
after which we should see some very interesting things emerge :-)

[1]
[https://en.wikipedia.org/wiki/Hype_cycle](https://en.wikipedia.org/wiki/Hype_cycle)

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maxforce
Well der... I think you'll also find the emporer is not wearing any clothes.

