There is a lot of excitement today following the news of the launch of the Enterprise Ethereum Alliance in some cryptocurrency-focused corners of the internet.
The buzz is focused on an announcement of a new consortium of mainstream financial institutions who banding together to figure out how to use ethereum blockchain to make corporate banking more efficient.
Blockchain as wilderness
The market value of ethereum has been climbing all week, which is likely a signal of the importance of today’s announcement, and the hopefulness of some cryptocurrency investors and traders.
While I’m sure there are some detractors who want to maintain the outsider status of ethereum, or blockchain and cryptocurrencies more broadly, there is another segment of the ethereum community that sees the newly announced Enterprise Ethereum Alliance as a step towards a greater openness and decentralization of modern banking infrastructure.
Not to mention it could open the door for more ethereum-based applications.
On their end, banks are interested harnessing the power of the blockchain to lower transaction costs. According to an article in today’s Wall Street Journal, large financial institutions can realize about $10 billion a year in savings by 2025 by reducing the friction associated with traditional transaction costs.
In the same Journal article, Paul Vigna writes:
“The Ethereum Enterprise Alliance expects to launch a working version of its protocol, called EntEth 1.0, this year, and will be inviting developers to help build it out and build products on it. The goal is to create an open, flexible platform that would at the same time preserve some privacy for banks.”
Is this the same song?
This isn’t the first quest by a large consortium to find a way to harness the promise of blockchain. I’m not an expert by any means, but I’m guessing it’s not the last either.
It seems to me, remember — still not an expert — that the dreams of banks and mega financial institutions and the goals of blockchain enthusiasts and proponents are slightly at odds. It might be a tough sell for a bank to explain to its clients that their financial information will be cast out onto a distributed network of computers across the world, with little sense of accountability.
While there is privacy inherent in the cryptography that underpins a decentralized blockchain, there are still security risks associated with combining transactions that would probably require some remnants of the centralized system (like proving identity to comply with anti-money laundering laws) with a decentralized system.
After all, the Danish police just recently figured out how to id people using bitcoin transactions.
Nevertheless, it will be interesting to see if and how this privacy issue gets solved and if traditional mainstream banking and crypto finance are compatible.
Let me know what you think.