Just when a years worth of blockchain hype seems to be subsiding, a new debate is under way about the technologys suitability for the financial industry.
The instigator is Richard Lumb, consulting firm Accentures group chief executive for financial services. He contends that a key characteristic of the blockchain, which has worked flawlessly as the distributed ledger for Bitcoin transactions, is a hindrance to its adoption for many of the test cases now being explored in financial markets. That characteristic is immutability the inability to change or correct the permanent, cryptographically protected blockchain ledger.
Arguments are par for the course in the cryptocurrency world. The decentralized and at times anarchistic Bitcoin community, for example, has struggled to agree on how to scale up from the handful of transactions per second that the standard protocol was designed to handle.
Scalability will be an issue for financial industry blockchains, but presumably uncontroversial technological solutions will emerge to address that need. Lumbs more fundamental concern is that in financial transactions, errors are inevitable and have to be resolved and reconciled, and he is proposing a technological fix. He and his proposal to make the blockchain editable evoked heated opposition from what he calls a purist faction that categorically defends the blockchain and its immutability.
Accenture Gets the Blockchain Horribly Wrong, blared the headline of a blog post by Robin Bloor, chief analyst of the Bloor Group. He said blockchain is as amendable as an accounting ledger, simply by reversing an entry.
On one side of the debate are those who argue that immutability is precisely what makes the blockchain such a significant innovation, says an Accenture report, Editing the Uneditable Blockchain. On the other side are pragmatists who increasingly see where and how in enterprise environments immutability may prohibit adoption due to human error, mischief, and privacy laws. For blockchain to deliver on its promise to streamline any number of e-commerce, database, and asset-tracking applications, the voices of pragmatism and practical ingenuity must be heard, the report asserts.
Accenture and Giuseppe Ateniese, a computer science professor at Stevens Institute of Technology, co-developed and jointly filed for U.S. and European patents on a prototype editable blockchain that was unveiled in September. Ateniese pointed out that the solution is compatible with current blockchain frameworks and works in a decentralized and accountable environment.
So why should purists be bent out of shape?
They come from the permissionless world, Lumb tells Institutional Investor, referring to the open and self-governing nature of Bitcoin on the blockchain. Accenture, which is an investor in and partner of distributed ledger company Digital Asset Holdings, is in the business of serving corporate clients, he says. Especially in the financial services industry, blockchain applications will be running alongside aging legacy systems, will have to meet extensive regulatory and compliance requirements, and will be designed for specific purposes with permissioned access and some degree of central administration.
Editability is a plus under those conditions, in Lumbs view. He says client reaction has been positive, but there are industry skeptics too. Sandeep Kumar, managing director of consulting firm Synechron, which in September launched a blockchain accelerator program to stimulate development and testing in such areas as global payments, margin calls, and trade finance, says there is no clamor for an editing back door. He contends scalability and resilience come up more often as real-world concerns.
Editabilitys time may come, but the increasingly accepted enterprise-blockchain reality is that nothing happens overnight. There is much work to be done to prove the technology (in terms of attributes such as resilience, scalability, security, and integration) and define standards and protocols, says a recent report from Ernst & Young and London fintech organization Innovate Finance. It will probably be a number of years before the full benefits are realized.
It is best to have all the issues out in the open. Accenture has raised a new one.