It’s a settlement mechanism you twat, not a currency

So, several banks are getting together to try to use the blockchain as a settlement mechanism.

Ritchie thinks they’re setting up a new currency.

Sigh.

The FT is reporting this morning that four banks are teaming up to create a new form of digital currency based on blockchain technology: a rival to Bitcoin in other words.

No, they’re not setting up a rival to Bitcoin:

The utility settlement coin, based on a solution developed by Clearmatics Technologies, aims to let financial institutions pay for securities, such as bonds and equities, without waiting for traditional money transfers to be completed. Instead they would use digital coins that are directly convertible into cash at central banks, cutting the time and cost of post-trade settlement and clearing.

It’s about clearing trades more quickly, thus reducing the amount of capital that must be devoted to clearing.

Ritchie:

I have problems with this. First, there are questions to ask about the control mechanisms in this process. I have already expressed my concerns about the Bitcoin process where the creation of currency blocks appears to give rise to an unknown beneficiary of the credit (or income) in the process. I believe this is a major potential cause of financial instability.

Second, in the case of new bank created currencies I do therefore want to know if the credit arises from loan structures or is taken to an income account, as appears to be the case in the Bitcoin blockchain, which is why its behaviour cannot be like that of conventional money.

All irrelevant therefore. And then this:

Third, the regulatory environment for this new mechanism needs urgent attention. It is claimed it will allow greater volumes of trading by banks with lower capital requirements, but that also very obviously links to increased risk. Who is going to make sure that the risk in question is managed within the banks and has no potential spillover effect?

The risk is of course that trades will not clear. Making trades clear faster reduces said risk. Twat.

And last, what is the relationship between such a currency and money laundering regulation? The question needs an answer.

They clear through central banks…….

Banks will not be undertaking these activities without expecting a return. Too many bank returns have for too long been at cost to society at large. That possibility seems implicit in these arrangements. Some pretty firm regulation is required in that case.

Strangely, we at least hope that would be regulators understand that which they hope to regulate.

22 thoughts on “It’s a settlement mechanism you twat, not a currency”

  1. That is stupid even by “Dachau” Murphy’s standards. The concept of the blockchain could really revolutionise the way the world operates yet for him it is a threat to world taxes. For all his vaunted interest in social justice, we all know that his only real desire is for everything possible to be heavily taxed. Why do the Quakers tolerate him?

  2. He has an amazing ability to misunderstand absolutely everything, and write voluminously and tediously illustrating that misunderstanding.

  3. Hang on a second. I’ll admit I know bupkis about blockchains, but it appears to me that any new form of payment that is accepted as payment for X, because it can then be exchanged for something else that is more traditionally considered money will over time become itself a form of money. Just as in the way paper notes that were a claim on gold in a vault somewhere became accepted as ‘money’ without the gold being claimed each and every time someone used the note. So what is there about this system that stops it being used as money, and the cash at the central bank never or only rarely claimed?

  4. Richie is definitely missing the point here. The big attraction of the blockchain is that anyone in the system can track and validate transactions. This means it is possible to verify that X really did transfer the ownership of whatever it is to Y at time T and that therefore Y can sell it on at time T + N and X can not sell it twice.

    Right now a huge chunk of time and energy and salaries etc. is taken up confirming that yes the seller did in fact own what he was selling and the the title to whatever it is has been transfered to the buyer.

    Take all those mortgages bundled up and sold in chunks that nearly broke the financial system in 2008. A huge part of the pain of handling the resulting mess was trying to figure out who actually owned the mortgage because the manual title transfer process couldn’t keep up with the trading of the securities that contained the mortgages. With the blockchain this is trivial. each mortgage is stuck in an escrow system and assigned a nominal 1 unit value. This goes into the next blockchain. Then as these mortgages are grouped/split/spindled/mutlilated etc. each change is logged to the blockchain. Thus we can track exactly who owns the mortgage now

  5. John Square in Athens

    @ Francis- Cheers for the concise explanation, plus details of the implications of this in the real world.

    As others have said- Ritchie not getting it isn’t news, but the degree to which he’s got the wrong end of the stick in a specific case is always interesting.

    BTW: Does anyone else think he’s casting about for the next “big issue”?

    We had Ritchie- The Courageous State, Ritchie 2- Peoples QE, Ritchie 3- Tax Inspect-Duh, is Ritchie 4 going to be doing Cyber currencies? is it his version of the Matrix?

  6. Well hang on, is it an ‘Does X really own Y’ validation system, or as the post above says ‘digital coins that are directly convertible into cash at central banks’? Or both? Or neither?

  7. Bless him. He has simply no idea about Blockchain and Bitcoin.

    Just when you think there’s nothing left to illustrate his ignorance he finds an entirely new subject area to get completely wrong.

    On this he’s about as wrong as the difference between Intranet and Internet.

    I have already expressed my concerns about the Bitcoin process where the creation of currency blocks appears to give rise to an unknown beneficiary of the credit (or income) in the process.

    The clue here is that the bank system is a settlement coin. It’s simply a digital token that uses the blockchain to allow speedy settlement (transmission and checking of ledger). That’s it. It will still have to be bought for equivalent amounts of ‘real’ money. If banks could ‘create’ the tokens at at will it would lose it’s value as a settlement tool.

    Bitcoin, on the other hand, is created by huge amounts of electrically powered calculation. It is ‘mined’. It’s not a free lunch – unlike Ritchie’s beloved QE. You can’t just throw a switch and make it in larger amounts.

    Ask him about the difference between ‘proof of work’ and ‘proof of stake’.

  8. Good grief.

    “BC” over on Murphy’s site explains slowly and clearly why Murphy is wrong. Murphy, as usual and having taken a knee-jerk reaction position refuses to budge from it.

    His usual back-up argument then comes to light – he has “spoken to experts on the subject” and so knows that he is right and the contributor is wrong. No need to explain why. It is so because Murphy has said so.

    What a complete and utter moron. No wonder no-one wants to associate with him intellectually.

  9. Ritchie: “I have problems with this”

    He has one problem – he has no clue. The rest follow from this.

    “The big attraction of the blockchain is that anyone in the system can track and validate transactions.”

    You’d think Richie would like this bit, but as he hasn’t a clue he doesn’t realise what he has missed.

  10. Bloke in Costa Rica

    Really, what did anyone expect? The idea that someone as utterly, catastrophically stupid/ignorant as Murphy could have anything useful to say about cryptofinance is risible. It would be like expecting to get an enlightening exposition of formally étale morphisms from a cocker spaniel.

    I do know from cryptography, which is why (given how tricky it is) before I started spouting off on a certain area I would do my damn homework and make sure I really had the concepts down pat. Murphy is mercifully unburdened of any such desire not to make a complete arse of himself, over and over and fucking over again.

  11. Dickie can’t see the blockchain for the bitcoins.

    Diogenes said: “He doesn’t even realise that the blockchain is a control mechanism, the twat!”

    I imagine public spending administered via such a system would be a central planner’s dream. Quickly able to call up spending data by the bucketload and able to prevent overspending. It would presumably make transparency obligations a doddle too.(and a brief google tells me George Galloway suggested this for the London Mayor’s budget …)

    But there is also potential for mission creep. When the coalition government came in HMRC rattled off a selection of ideas about how to improve public finances. Naturally, spending less and better didn’t spring to mind but Real Time Information did and that is what we now have for employed people.

    At the same time it was suggested that everybody’s gross pay could go to HMRC for deductions rather than having employers making the deductions and payments. Criticism at the time was that it was too intrusive, too complex and too insecure. I could easily imagine ministers being sold on some kind of blockchain program tying income, entitlements, employment, etc together as a background payment processing system. They would be promised a government spending panacea but end up building a panopticon.

  12. One thing to be said for Murphy

    When he goes down, he makes sure he goes down in flames!

    BC
    I speak from 15 years of personal experience.

    Murphy
    – your explanation looks like the one at fault

    BC
    I’m trying to keep this simple, given you don’t seem too understand even the basics. But I would hope I know what I’m doing as I am currently implementing the quantum cryptography for my company’s private keys for a very similar system.

    Murphy
    I candidly do not believe you

  13. BiCR – ha ha. Speaking as someone who candidly hasn’t got a fucking scooby about cryptography or Bitcoin this made me guffaw:

    “It would be like expecting to get an enlightening exposition of formally étale morphisms from a cocker spaniel.”

    In that analogy I am the cocker spaniel but at least I know it.

  14. From Imbecile’s blog
    ” MayP says, August 24 2016 at 2:49 pm
    As I understand it the blockchain requires vast amounts of computer power such that there is not enough in the world to make the blockchain utilisable by the general public. So this digital cash will be of use only to those able to make the large investment in the computer power required.”

    Richard Murphy says, August 24 2016 at 3:38 pm
    Some say it is only Bitcoin that requires the IT power
    But I suspect that may not be the whole story”

    Valiant effort by BC. The imbecile either now knows he is wrong, but won’t admit it; or is more lacking in intelligence than I believed possible.

    @Tim Worstall

    ROFL reading you quoting him on Forbes, I hope he is consumed with rage. Looking forward to his and his followers rebuttal comments on your Forbes article.

  15. BiND, indeed, it’s like one of those old-fashioned library tickets where each user signed on a card that was held in a pocket glued to the book cover.

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