What is Wall Street Doing with Blockchains? Not Much.


Everyone in Bitcoin was at Consensus2015 today! Citigroup, Barclays, CME, NASDAQ, Digital Asset Holdings, DTCC, a bunch of other people, and me.

The ongoing meme was If you like it, put a Blockchain on it.

There’s been a lot of noise around Wall Street and the blockchain. But stuff that the blockchain is good at is actually not that useful here.

Bitcoin people think that intermediaries should be removed from financial markets, to cut out slow and expensive middlemen. But that’s not how regulated financial markets work.

Intermediaries play a crucial role in trust and regulatory compliance. Sure, they have inefficient infrastructure. Blockchains can help with the inefficient infrastructure.

But when financial institutions say “blockchain”, they really mean “distributed ledger”. And a distributed ledger is no more than a database that can be shared and replicated.

That’s not a blockchain.

Blockchains are designed to be trustless. The Bitcoin blockchain requires a mining protocol because players may act maliciously and include invalid transactions in a block. Or they may try to pass off a block without proper validation to be first to win the mining reward.

The proof-of-work concept ensures that the computational power required to validate a block is negligible compared to the power involved in performing hash functions. It’s kind of like crippling every miner with a 38-mile fiber optic cable coiled in a shoebox.

The result is that the first block mined is not self-interested because it happens purely by chance.

Financial institutions will likely be transacting on a private blockchain with other known institutions. Probably none of them will inject malicious transactions. Presumably there are rules governing the order of transaction processing so there is no need for a mining protocol. Block assembly won’t be left to chance.


Some salient blockchain aspects remain intact: Replicated ledgers remove the risk of single-point failure. Transactions are digitally signed and hashed for future verification.

But that’s like, any replicated database!

Why do they still use the word blockchain? To sound cool? Maybe next, digital assets can be delivered by drone?