The world's central banks should consider a decentralised approach to economic management, said Ethereum blockchain co-founder and current CEO of ConsenSys, Joseph Lubin, at Sibos 2018 in Sydney.
“I see physical cash as fundamentally analogue in that it represents a central bank’s issuance which is manipulable and, in various economies, subject to extreme manipulation,” he said.
“I therefore think there’s a strong case for central banks themselves putting money on more decentralised, transparent, protocol-based issuance, having different monetary systems compete with one and other. I feel the decentralised protocols that subserve natively digital money and other kinds of assets will win out in time.
“Blockchain is a next generation database system, in a radically decentralised context it fosters much greater trust, and still fosters greater trust in less decentralised contexts. It’s incumbent on us to figure out ways to use the technology and potentially set up different systems that are more decentralised,” said Lubin.
But Stephen Gilderdale, Swift’s chief platform officer, suggested a more cautionary approach: “Trust is contextual and is grown from a personal perspective. The human aspect, where enough people believe veracity to be sufficient enough to buy into a system, will determine the success of decentralised systems.
“If you already trust the control mechanism for the system, whether a central bank or a governing institution then the need to move to decentralised is relatively low.
“Let’s also not forget that control still exists within decentralised systems, largely with the developer community. It raises the question of why people trust developers and not existing controllers,” said Gilderdale.
“Decentralisation ramifies across a variety of different dimensions including developers, foundations, miners, transaction validators and exchanges. Decentralisation is a set of open source protocols where one can fork a project at the source code level. Ultimately, decentralisation is about having options,” he said.
And it is a system that innovation officers in the financial services are already anticipating from various angles.
“We believe that this technology really has the potential to radically change the way we do business,” said Annerie Vreugdenhil, head of innovation for wholesale banking at ING. “We see a lot of traction in trade finance which hasn’t changed its general model in 300 years in the form of physical documentation; this can be replaced by the immutability of smart contracts," she said.
Vreugdenhil went on to say that decentralised and distributed systems may change the very nature of the function of banks.
“Banks are mostly building infrastructure with blockchain such as replacing documents with smart contracts. Ideally, you can create a new kind of trust, where people trust strangers which will enable way more trade between people. It opens up a whole new possibility for SMEs to work with merchants they’ve never heard of before.
Banks, as the platform and bridge between supplier and customer "could create business models in search for counterparties and proving the veracity of reliability and supplier/merchant reputation,” said Vreugdenhil.