Blockchain: Why I’m a skeptic

Last year when I attended Money20/20 in Las Vegas, blockchain was the buzzword of the week. This October when the 2016 edition gets underway, I doubt that much will have changed in that respect. And nearly a year later, I’m just as puzzled by blockchain as I ever was. Can a technology created so that you can transact business with an untrusted entity via an untrusted intermediary, i.e, created arguably so that criminals can transact business, really be what credit unions need?

I get why blockchain, a.k.a., distributed ledger, is so attractive. Static tokens like credit card numbers are security Swiss cheese. Dynamic, single-use tokens like those used in blockchain technology are clearly superior. I just don’t believe that the general need for dynamic tokens is enough reason to put all the focus specifically on blockchain.

For starters, think about the term distributed ledger. At its heart, blockchain is a ledger system – a way to keep track of transactions. But isn’t that what your core platform is for? With a distributed ledger system in place, will you end up maintaining two ledgers – one on your core and one on the blockchain – that need to stay synchronized? If they get out of sync, which one takes priority? What will regulators think of all this? And what incentive do the core processors have to buy into a scheme that seems to push them toward irrelevance?

It’s obvious that a credit union-only distributed ledger system will require universal adoption to be of any use. It’s my experience that trying to achieve universal adoption of anything in this industry is an act of pure futility.

Even if all credit unions wanted to take part in such a system, how much computing power will a credit union need to maintain a ledger of not only its own transactions, but of every single transaction from every single credit union in the country? Remember, having each node on the blockchain maintain a discreet copy of the ledger is what distributed ledger is all about. It boggles my mind.

I’ll leave you with this. This past May at Concensus 2016, the flagship conference for Bitcoin/blockchain, one of the most repeated quotes came from a Bitcoin entrepreneur and libertarian named Erik Voorhees. Said Voorhees, “I have no problem with the financial industry inviting the Trojan Horse of blockchain technology into their walled garden, because I know how powerful the technology is.”

Let that sink in for a minute.