Goldman Sachs Is Trying to Make Blockchain Bonds Happen
This week, David Solomon (DJ D-Sol if we’re using stage names), chairman and CEO of investment bank Goldman Sachs, proved he’s stuck in the past with a Wall Street Journal opinion piece he penned titled: “Blockchain Is Much More Than Crypto.” The article was published on the heels of Goldman saying it’s planning to spend “tens of millions” on discounted crypto investments.
In the article, Solomon correctly points out that blockchain came in and disrupted heavily regulated industries like banks. Oddly, he goes on from there to claim that the deafening call for regulation means young “blockchain organizations” won’t be able to keep up with regulatory requirements. And that is especially true of cryptocurrencies, but we “shouldn’t miss the forest for the trees” – that is, we should recognize that blockchain can “support responsible innovation across the financial industry” without cryptocurrencies.
We’ve heard that one before: “I don’t know about this bitcoin thing, but there’s surely some potential in the underlying blockchain technology!”
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To defend his position, Solomon shared how Goldman Sachs used a private blockchain to arrange a 100 million euro two-year digital bond for the European Investment Bank that was settled in 60 seconds instead of the usual five days. Praise be to its private blockchain!
The takeaway is supposed to be that Goldman will use a private blockchain to reduce settlement times, ultimately lowering costs for all stakeholders.
The reason bonds settle in five days is not because of the lack of a blockchain; it’s because of Goldman Sachs and regulation and bureaucratic red tape. Adding a private blockchain isn’t going to rid Goldman Sachs’ bond placement process of Goldman Sachs and regulation and bureaucratic red tape. Especially when that deafening call for regulation is answered.
Sure, maybe adding a blockchain is a solution, but really, it’s not for one main reason: Private, permissioned blockchains are worse than useless.
Read more: How I Lost My Faith in Private Blockchains
Blockchains have killer apps – but this isn't it
Don’t let anyone trick you; blockchains are not a complicated idea. If you know what a database is (an electronic repository of data), then you basically know what a blockchain is. Databases store data in a place. You or Goldman Sachs can access that data electronically if the database manager allows you access to that data. Otherwise, no data for you or Goldman Sachs.
Blockchains are the same thing, but all the data is public and copies of the database are stored in many disparate places. In theory, just about anyone can join and maintain their own copy of the data on a computer they know and trust.
If that sounds like a very narrow, minimal-potential use case and potentially slow technology, that’s because it is. There’s no need to allow everyone to have non-permissioned access to every piece of data all the time unless you are trying to get around needing a database manager or some other trusted third party to access that data. Something like digital money could be a good application of this technology.
Anything else, you’re better off with a regular database.
Really, the takeaway here is that blockchains are yet another round of narrow, minimal-potential-use-case technologies getting shoved into all sorts of broad applications where they simply shouldn’t be shoved. (Cue the conversation about pairing artificial intelligence with our drinking water, or whatever).
Shipping company Maersk and tech giant International Business Machines tried to blockchain-ify supply chains and put tomatoes or bananas or whatever on the blockchain through a shipping blockchain called TradeLens (whatever that means). TradeLens failed and shut down two weeks ago after almost five years of trying. It failed because it didn’t reach “the level of commercial viability necessary to continue work and meet the financial expectations as an independent business” because the idea simply isn’t viable.
I think the killer app for blockchain is decentralized money. Others think it's decentralized governance. These ideas come to life as unbanked women in Afghanistan seek financial freedom through Bitcoin and as crowdfunding efforts are organized to bid on things like the U.S. Constitution (a sillier example comparatively, sure, but pretty timely). The killer blockchain apps will most probably (and currently do) live on public, permissionless blockchains.
All said, I can assure you of one thing: The killer app won’t come from private, permissioned blockchains used to settle bond placements by huge, multinational investment banks.