When most people think about computers and robots taking jobs away from humans, the images that usually come to mind are robots moving inventory around in an Amazon warehouse or McDonald’s customers placing their order via a tablet instead of a cashier.
But the robots are coming for much more sophisticated jobs as well. For example, blockchain technology is out to eat the lunches of some professionals in the traditional financial system.
There’s a Lot of Mistrust in the Banking System
At a recent blockchain-focused event in Toronto, Bitcoin Core contributor Peter Todd was asked to explain the reasoning behind Wall Street’s increased interest in blockchain technology. During his initial response, Todd pointed out some of the mistrust that exists in the current financial system:
“The dirty secret is [the banks] don’t actually trust [their databases]. I mean, they don’t trust their own employees. ... They don’t trust each other. There’s so many levels of mistrust here.”
Todd then discussed the massive industry built around financial audits. He noted:
“If they did trust all this stuff, why are there so many auditors? Why is there this massive infrastructure of labor-intensive human beings sitting there poring over transactions and trying to figure out where the money got created out of thin air. Where did the money disappear? Who moved what where? Was it all legit?”
Many financial institutions are interested in the concept of creating new systems for record-keeping, which would replace the current closed-ledger system with a more open alternative, similar to Bitcoin. Many believe this open system would enable more efficient and transparent auditing of financial activity.
The Status Quo Is Doing All Right But It’s Hard to Improve
Todd also pointed out that financial institutions are already pretty good at what they do in terms of audits. He stated, “For the most part, bank fraud is at tolerable levels, it seems.”
Todd noted that maintaining a proper history of financial activity is one of the issues with increasing the speed of settlement. Because audits are labor intensive and require man hours to complete, it’s difficult to essentially come to consensus on the correct version of events in a nearly instantaneous manner. He added, “The faster money can move around, the faster you could lose it all due to some hacker.”
How Does the Blockchain Help?
Todd spoke on the perceived advantages of blockchains over the current way things work, which relies on placing trust in database admins and the people with the keys to the system. From this perspective, a blockchain simply looks like a strong audit log. Todd gave a specific example of how this technology can help:
“It could be something as simple as when I, as a bank employee, type something in, we really do want a cryptographic signature that’s actually tied to my keycard or something. And that should go into a database. Well, what does that look like? It looks like a blockchain.”
The longtime Bitcoin researcher also pointed out that this is sort of what banks were already looking at doing before blockchain technology started to receive a lot of attention. He explained:
“I think where they’re thinking of going naturally looks like blockchains, so when they hear all this blockchain stuff it’s like, ‘Oh yeah. This is roughly what we were looking at doing anyway.’”
Replacing Humans Is the Point
At one point during the recent event in Toronto, Todd was asked if the trend is that blockchains will eventually replace human auditors. Todd responded:
“All this blockchain stuff is really about: How good can we make the security to get to the point where we can imagine getting rid of human beings?”
Indeed, Todd’s comments appear to fit well with Satoshi Nakamoto’s original Bitcoin white paper. In the paper, Nakamoto stated:
“What is needed is an electronic payment system based on cryptographic proof instead of trust….”
Going back further, cypherpunk Nick Szabo has written about the concept that third parties are security holes. In addition to improving security by cutting out trusted parties, financial institutions can cut costs by replacing human labor with computer code.
Kyle Torpey is a freelance journalist who has been following Bitcoin since 2011. His work has been featured on VICE Motherboard, Business Insider, NASDAQ, RT’s Keiser Report and many other media outlets. You can follow @kyletorpey on Twitter.
The post Blockchain Technology Could Put Bank Auditors Out of Work appeared first on Bitcoin Magazine.
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