This article nicely sums up the attitudes surrounding Blockchain today. It will eliminate all sorts of problems – if only it works and scales. Oh, and also only if people can be totally eliminated from any aspect of the process – since people always find a way to steal:
“Its [Blockchain] primary aim is to digitise so-called letters of credit (LoCs), which are issued between banks, typically across borders, as a guarantee for payments between companies that want to trade goods or services.
Under the existing system, issuing, verifying and tracking LoCs is a largely paper-based, cumbersome and costly process that has seen little meaningful change for at least a century. Each party in a transaction, and there could be many, also has to keep and verify their own separate paper records which, among other things, can give rise to fraud.
“Contour effectively eliminates the reliance on paper documents, automates manual data capture and reduces the risk of errors and fraud,” says Vinay Mendonca, global head of trade products and propositions at HSBC.
“It also provides clients with access to faster, simpler trade finance and can help them achieve working capital gains.”
Can blockchain networks overcome their limitations?
Proponents believe such systems will eventually go mainstream, having a big impact on firms and consumers around the world who currently lose billions of dollars to fraudsters each year.
But Dr Arun Vishwanath, a technologist and cyber-fraud expert affiliated to Harvard University, says the idea that we might completely eliminate the problem using blockchain is a “pipe dream”.
In terms of using blockchain payment systems to move physical goods or swap contracts, he says: “People are the operative problem because they can interfere with transactions in myriad ways. People can change output quality, transpose products, provide poor service, and on and on.”
Another issue is that most of the blockchain payment solutions being trialled rely on private blockchains that place tight restrictions on who is allowed to participate in the network and on what transactions.
While private systems might work in limited and controlled situations, scaling them so they have the global reach of fully decentralised public blockchains, best known for their association with digital currencies, will be much harder.
There are not only technical barriers, but public trust issues too, says Vishwanath, which means they are unlikely to ever challenge incumbent systems such as SWIFT.
“The flaws in the current financial system, although many, are still enumerable. With blockchain, we replace a knowable risk with a black box and have to trust the technology to do the right thing,” he says.”
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group
