Bank of Canada finds flaws with current blockchain solutions

Underpinning wholesale payment systems with distributed ledger technology (DLT) would introduce greater costs and risks for institutions than those which apply under existing wholesale payment systems, the Bank of Canada has said. However, a study carried out by the Bank of Canada, into the feasibility of using DLT to create …

[Anonymous Coward]

Interesting...

Sounds like the cost of preserving the integrity of the blockchain will turn out to be more that the cost of a centralized system overall.... Good to know. Better than jumping in like IoT with disregard for the consequences.

[JimC]

Re: Interesting...

Could well be. But that wouldn't stop a rabid enthusiast/organisation with bee in bonnet jumping in with disregard for the consequences.

[Trigonoceps occipitalis]

Re: Interesting...

Banks are businesses with customers. They have marketing departments. Cue whale song - "Our new account with blockchain support, so much better than ... "

[Version 1.0]

What a surprise!

The Banks find that a competing payment system is not as good as using a Bank - hardly unbiased research...

[Chris 244]

Re: What a surprise!

The BoC is not that kind of "Bank". It is Canada's central bank, analogous to the Fed. Duties include formulating monetary policy and promotion of a safe, sound financial system in Canada.

Considering how stable our banking system has been here compared to our neighbours to the south, probably makes sense to pay attention to what the BoC has to say.

[Version 1.0]

Re: What a surprise!

And like all institutional banks, it will do everything possible to tamp down the competition. Realistically Banks and bitcoin work together, each offers something that the other needs.

As far as the "user" is concerned, there's no difference between a bitcoin transfer and a wire-transfer, except that the bitcoin transfer is faster and cheaper ... and less profitable for the bank.

[Anonymous Coward]

No there isn't a small probability

'...as there is "always a small probability that the payment could be reversed"'

Yeah, and there's always a 'probability' that in a homeopathic dilution of something, you might actually find one of the original molecules. Don't count on it though.

A blockchain transaction sitting thousands of of blocks deep isn't getting reversed in the lifetime of this universe. And they're idiots to equate a homeopathic level probability to what a man in the street assumes by the term probable.

[Bronek Kozicki]

Re: No there isn't a small probability

How about reversing the transaction in the last block - in theory it is brute power only exercise, and network/market inefficiencies might tilt the power balance occasionally.

[Orv]

Re: No there isn't a small probability

Cryptographic algorithms that were once thought unbreakable have a way of becoming breakable as computing power increases and cryptoanalysis moves forward. It occurs to me that blockchain systems, by dint of their need to keep all transactions on the chain forever, are locked in to whatever crypto they start life with. That must give them an expiration date.

[Anonymous Coward]

payments are reversed/recalled more often that you would think

Banks make the same mistakes as consumers (albeit the numbers are bigger and frequency far reduced).

even a tiny fraction of a percentage of reversals in 24 hours could be many hundreds of thousands of transactions for some banks.

[Mage]

Three problems

Items 1 & 3 may not apply to specialist use of blockchain, except YOU will need to reverse transactions often, but NOT do it automatically.

1) It's deliberately designed to be absolutely anonymous. So reclaiming "money" in case of disputes is nearly impossible. It's of most use to speculators and criminals.

2) It's got a serious design flaw. Increase in processing & communication is WORSE than growth of N, thus not scaleable. This is due to no central control and totally distributed & anonymous nature.

3) The mechanism for creation of bitcoins.

Item two makes the "blockchain" design useless for any major application and pointless for anything controlled by one organisation, such as a Bank, government, credit card or Paypal. Anything solving these issues isn't "blockchain".

This is not new news.

The only real world problem the "blockchain" solves is ability to anonymously do transactions like handing cash to a random stranger. Like that, it's assumed you'd not generally expect to reverse the transaction.

[Brewster's Angle Grinder]

Re: Three problems

They explicitly weren't talking about bitcoin. I don't know the technologies they were evaluating (Etherium and Corda) so I don't know whether they suffer from these problems.

[Anonymous Coward]

Re: Three problems

Don't confuse Bitcoin and Blockchain. Blockchain is the technology behind Bitcoin, but there are other implementations of Blockchain or DLT technology; some public & anonymous, some private & permissioned - see JPMCs Quorum, Hyperledger Fabric, and R3s CORDA for examples of the latter.

[Mage]

Re: Bitcoin and Blockchain

I'm not.

Almost all of the Bitcoin problems are because it uses blockchain.

It's a solution looking for a problem, and not scaleable. So niche applications.

[Anonymous Coward]

Re: Three problems

I thought the blockchain verification method actually depended on Bitcoin mining, such that when the last of the 21,000,000 bitcoin has been mined, the verification rate would drop to zero? Am I confused about this.

[-tim]

Its secure... right?

If you have a system that is based on two different types of cryptology, you need to test it by dropping both to some thing silly like AES-512 keys but they are all 0000...0 to 0000...00ff and then make your hashs only return 256 values. Now you only have 65536 combinations to play with and you can see what happens when someone breaks it. Block chains gets very wobbly when someone breaks them. If you add in the fact that "no one can break it" and add that to the level of trust, your asking for a disaster in the future.

[Sorry that handle is already taken.]

FIFY

Not an option for underpinning payment systems at present

[Oliver Snowden]

cough

in South Africa there is a saying "tell a man to beat a dog and he will find a stick" - this tech is just getting started. Furthermore, word on the street is that top talent in large finance firms have moved onto "blockchain" tech startups, which is increasing the gravity to that sector.

[Blank Reg]

Re: cough

Yup, everyone is jumping on the blockchain bandwagon, but it wouldn't be the first bandwagon to break a wheel after a few years.