In the Luxembourg financial and innovation sectors, blockchain is often discussed a key element in the financial industry’s future, mentioned alongside artificial intelligence as a way of promoting digitalisation and cutting unnecessary costs. But some who are familiar with the technology as part of the Bitcoin cryptocurrency have said that blockchain is a poor choice for this sort of application.
“Distributed ledger technology, most commonly known as blockchain, has been a key strategic topic for ABBL since many years now,” said Ananda Kautz of the Luxembourg bankers’ association in a recent webinar. A network of public actors in the financial and innovation sectors have expressed positive views on blockchain.
Aurélia Viémont, a senior counsellor at CMS Luxembourg, pointed out in the same discussion that the Luxembourg financial regulator the CSSF has been “very involved in creating an environment which supports reliance on this technology,” she said, adding that actors such as the House of Startups or the LHOFT (Luxembourg House of Financial Technology) support the development of blockchain.
Companies, such as LuxDLT or divisions of companies such as Clearstream, have been founded to take advantage of the benefits of blockchain, which is often referred to as “distributed ledger technology”, in what some see as an attempt to separate it from its association with the more controversial Bitcoin. But long-time observers of the discussion of DLT/blockchain have point out that it’s always on the horizon, but hasn’t yet managed a real splash.
The bear view
Speaking at a recent Capital Group webinar looking at the development of Bitcoin, Mark L. Casey, a California-based equity portfolio manager at Capital Group, addressed the idea of blockchain having become a marketing tool. “There’s a phrase that you often hear …, ‘I’m not that interested in Bitcoin. But I think the blockchain technology that makes it possible has wide number of uses and is very interesting.’ My own view is the exact opposite, which is I don’t think there’s almost any good uses for blockchain that I’ve ever come across, except for Bitcoin … My guess is 99.9% of the use cases you hear advertised for blockchain will end up either failing or not using blockchain, except for Bitcoin.”
“A blockchain is a very cumbersome, slow, expensive, difficult form of technology to work with,” said Casey. “Anything you can do with a blockchain, you can also do with a database, with clients that edit it, with a system administrator and a bunch of developers and you can do it faster, cheaper and easier. The only reason you would sign up to use the slow, costly, painful blockchain is if the application is one in which you can’t trust anyone.”
Negative image of Bitcoin
Bitcoin has come to have a negative public image in some quarters, mostly for its extreme volatility – such as its December 2021 USD 12,000 price drop from a record high – and supposed attractiveness to criminals. But attention to cryptocurrencies from state central banks and the growth in electronic payment means – it’s now a payment option on PayPal – has accompanied a steady rise in interest in Bitcoin. It has even become legal currency in Central America’s El Salvador.
Bitcoin is unique in that it’s an entirely-digital “object money” without a central issuer, and with an open, decentralised network of enabling participants who are able to spend Bitcoin through the blockchain, a scripted, distributed database. Bitcoin’s version of Blockchain uses cryptography in a mechanism in which nodes compete to verify transactions and add them to the shared immutable ledger that is the blockchain.
A cryptocurrency enabler
Casey explained his view of the Bitcoin- blockchain relationship. “What the blockchain does with Bitcoin is it allows there to be no central people who control it in any way, yet to have the millions of computers that participate in the network all agree on who has transferred what, to whom and when.”
Bitcoin is the only digital money that can’t be censored, argued Casey. “Nobody can stop you from sending or receiving a transaction, nobody can undo a transaction that can be done, the system is open to everybody in the world with internet access. Again, that’s something everybody in the world needs,” especially in places dealing with oppressive regimes. But, he explained, it’s a terrible crime tool, since every transaction is recorded forever and is auditable.