Wired shows why Blockchain Banks may never happen

This morning’s article from Wired on a new movement to create a unified virtual currency exchange also sheds some light on just how difficult selling #blockchain maybe to banks.

According to Ripple’s Thomas, the company first designed the interledger protocol after various big banks balked at using a distributed ledger a la Ripple.

As Thomas explains it, the banks didn’t like the idea of having machines in foreign countries validate domestic transactions, and they didn’t like the semi-public nature of these ledgers, which could give outsiders a window into their businesses. The most they were willing to do, he says, was “fork” the code for Ripple and build their own internal system. And that would defeat the ultimate purpose. “A blockchain is essentially worthless if it’s just used within a single organization,” says Marly Gray, who oversees bitcoin work at Microsoft.

So the pivot is to have banks use their own systems and interact on the periphery. Thomas is developing an Interledger protocol.

In essence, the interledger protocol creates a system where two different ledgers can exchange money through a third-party “connector” or “validator” machine. But the ledgers needn’t put their trust in the connector. Using cryptographic algorithms, the protocol allows the two ledgers and the connector to create an escrow of funds and then exchange the funds when all agree that the proper amount of money is available. “You create an ad hoc consensus group for each transaction,” Thomas says

Still technical issues aside it’s not clear how this would be any significant improvement over the current banking system. Which is more hamstrung by regulations. Its the regulations which in turn dictate their pace of technological adoption.

Also the interledger protocol sounds a lot like Bitcoin’s Lightining Networks . Ethereum’s  Vitalik Buterin also discussed the concept of Abstraction in a blog post which would enable Ethereum to run on any currency, even enable decentralized currency exchange.

It will be interesting to watch as this develops and if it will include any support from existing virtual currency developers.