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Bank Consortium Successfully Tests Bitcoin Tech (thestack.com)
An anonymous reader writes: R3CEV, a startup dedicated to bringing blockchain technology to traditional finance, yesterday ran a successful test of transactions between 11 of the world's largest financial institutions. This represents a big step forward in bringing blockchain, the foundation for Bitcoin, to traditional banking. The test, which connected the banks on a private 'distributed ledger' using Microsoft's cloud-based Azure service, allowed participants to execute sample financial transactions instantly, globally, and without a centralized third-party clearing house. Participants included Barclays, BMO Financial, Credit Suisse, HSBC, Royal Bank of Scotland, TD Bank, UBS, and UniCredit among other leading financial groups.
It's ok, you utter the word, the secret's out now... Anyone seriously looking at "blockchain" technology is considering using Ethereum (aka bitcoin 2.0), not Bitcoin, including R3 CEV in the linked article. The ability to script transactions in bitcoin is fairly limited and not flexible. Yes there are ongoing ventures and ideas to work around that: side-chains, blockstream, colored coins, rootstock, etc, but these are all non-existent for production use at this time. Ethereum launched 6 months ago and can be used now, although it has far less time in the open than bitcoin (6 months vs ~7 years), so from a security perspective, it still needs to prove itself. Meanwhile, research teams of organizations can start testing it. Where Bitcoin can disrupt the financial sector, Ethereum can disrupt finance and "everything" else.
No trees were killed in the making of this post; however, many trillions of electrons were horribly inconvenienced.
The blockchain is not the key innovation behind Bitcoin. The block chain concept existed long before Bitcoin and was then known as "eternal log file". The problem with eternal log files was authenticity: Prior to Bitcoin, in order to make sure that you had an untampered version of the eternal logfile, the maintainer of the logfile would regularly publish hashes in ways that were deemed immutable. For example, one could print the current cryptographic hash in a daily newspaper with wide enough circulation that it would be infeasible to tamper with all archived copies. Obviously this process is slow and leaves the logfile open to manipulation for long times between publication of hashes. Bitcoin solves this authentication problem without trust, without a central entity and without long periods where entries to the logfile (or blockchain) could be modified. This is the key innovation of Bitcoin.
The other point is that transactions are free.
That's a misconception surrounding bitcoin. Transactions are NEVER free of cost. You can find ways to reduce the cost of transactions but they are never free. You have to consider exchange rate risk, opportunity cost, time value of money, transaction coordination, in some cases counterparty risk, technology risk and more. If you want to have a system as wide spread and convenient as the credit card system, there is a TON of cost in building and maintaining that. People have a mistaken idea that bitcoin transactions are free because they forget about risk and the time value of money and opportunity cost. Bitcoin is seemingly cheap because it piggybacks on the internet and computers people already own (sunken costs) but it is a false economy.
Banks make a lot of money passing the money around.
Yes they do because passing money around is a valuable activity and they make it easier than it would be otherwise. Imagine how much of a pain it would be to send money to Europe from the US if you didn't have a bank to facilitate the transaction. It would be a huge and expensive problem.