Since the beginning of 2015, the blockchain has been one of the most valued asset of the financial sector and IT industry. Yet, banks are still struggling to demonstrate valid use cases of the technology.
Financial and security experts, such as a trade-clearing firm’s president and CEO Mike Bodson, believe that the difficulty in the implementation of the blockchain technology originates from the financial sector’s overvaluation and exaggerations of its capabilities.
Initially, financial institutions and leading banking corporations began to exploit the blockchain to replicate the success of bitcoin and create beneficial distributed ledger-based systems for both themselves and their consumers.
However, as banks proceeded to the development and implementation of the technology, they continued to run into issues with applicability, security measures and infrastructure building. One major reason behind the emergence of such technical obstacles is the banks’ elimination of the decentralised nature of blockchain networks.
As distributed ledgers gradually morphed into centralised structures, banks and financial establishments ran into trouble trying to define the merits of the technology’s implementation. In the essence, a centralised ledger is identical to localised SQL databases or centralised servers, in the sense that it stores information in a repository controlled and manipulated by a single entity.
This approach to the application of the blockchain technology leads to virtually unsolvable technical complications. Experienced developers and security experts have a hard time finding solutions to the vulnerabilities of centralised blockchains because they are indistinguishable from normal databases in terms of structure and infrastructure.
“We’re probably overestimating the impact blockchain will have on the industry in the next two years, and underestimating its impact in 10 years,” said Bodson in an interview.
Despite the efforts of the world’s largest technology firms, including IBM and Microsoft, which serve thousands of financial institutions worldwide, banks are justly afraid of the consequences of such vulnerabilities in infrastructure and obvious security flaws.
Every cryptographic network or cryptocurrency must be open-sourced for logical reasons. Every blockchain network, whether it is proof-of-concept, proof-of-stake, or proof-of-work, has to pass through various problems and technical issues that arise as it grows and scales. Like Ethereum and even bitcoin network, it requires a cumulative effort from a larger community of developers to learn and trial efficient solutions and valid fixes.
But for banks, this trial and error phase may cost too much. Given their enclosed approach to the development of proprietary blockchain networks and their recognition of various security flaws, there is no wonder these institutions generally refrain from being the first to implement centralised blockchain networks.