Banks and financial institutions have promoted the word “blockchain” as a mysterious piece of software that will bring billions of dollars to banking and save consumers millions of dollars in fees. The only issue with this is, with over two years of testing, research, and implementation, not a single successful demonstration has been released to the public.
As such, the only successful implementation of the blockchain technology to date is bitcoin, which operates as a reliable and secure digital currency for users, traders, and businesses in the network. What the bitcoin network lacks in functionality and adaptability is compensated by its unprecedented security measures and protocols.
Private blockchains, also referred to as permissioned ledgers and centralized blockchains, are networks that replicate the structure of bitcoin without the proper utilization of cryptography, encryption, and decentralization. Essentially, they are federated databases that hold the capability of processing cross-institutional settlement of data.
Since 2015, an increasing number of banks and financial establishments have announced their interests in the blockchain technology. They’ve created a variety of consortiums, blockchain labs, research centers, and startup accelerators to integrate private blockchains into their systems. With the world’s most talented developers, banks have been struggling to show a working demonstration.
The simple reason behind the approach of banks and financial institutions in the integration process of private blockchains is, their objective goes against both technological and economical logic of the blockchain technology and crypto-networks in general.
Removing immutability of a blockchain network and expecting it to operate with viable security measures is like eliminating the engine of an airplane and expecting it to fly; Blockchain networks like Bitcoin run in a decentralized ecosystem to design an impenetrable and unbreakable ledger of data. Thus, even if certain blockchain networks are expensive to run, considering the benefits of having an unalterable ledger of data, it is worth sustaining.
In fact, blockchain networks are inefficient in running complex settlement of data and operations in general, as it is limited in the range of technological executions it can make. This restriction of flexibility of a blockchain network is what makes it so much more secure, reliable and robust compared to other data-based networks.
Banks are struggling to implement blockchain networks onto their existing systems because of the consequences of low security measures. Since they focus on the development of centralized blockchains, the security measures of bank-designed blockchains are identical to traditional SQL databases.
— Henry Brade (@Technom4ge) September 27, 2016
Experts presume that the weaknesses and vulnerabilities of bank and financial institutions’ private blockchain networks will force “blockchain startups” to pivot back to the bitcoin network for security and reliability.