MasterCard and TransferWise Executives Debate Blockchain Disruption at Davos

Bitcoin Magazine
MasterCard and TransferWise Executives Debate Blockchain Disruption at Davos

Blockchain technology has been a huge topic of conversation at this year’s World Economic Forum in Davos, Switzerland, and the subject was brought up by TechCrunch’s Matt Burns during a panel that featured TransferWise co-founder and CEO Taavet Hinrikus and MasterCard President of International Markets Ann Cairns. Both participants on the panel seemed to agree with the popular sentiment of dismissing Bitcoin while embracing its underlying technology, and Cairns even stated that MasterCard is testing the blockchain in its labs.

At one point during the panel discussion, Hinrikus questioned whether MasterCard could eventually be disrupted by blockchain technology.

MasterCard Doubts Bitcoin Longevity

When Matt Burns brought up the topic of Bitcoin, Cairns was quick to dismiss the digital cash system. She started by criticizing Bitcoin’s usefulness as a currency:

“I absolutely see a future for blockchain,” she said. “Bitcoin is just something that uses blockchain, and I don’t think the current construct of Bitcoin particularly has longevity. It behaves more like a commodity than a currency.”

The MasterCard official then took aim at the transaction speeds on the Bitcoin network. Although Bitcoin transactions are broadcast instantly, it takes an average of five minutes for a transaction to be confirmed in a block (a new block is mined every 10 minutes).

“It’s very slow,” Cairns said. “I mean, you read a lot of stuff in the press, but right now, it takes about 10 minutes to do a transaction. Imagine you’re waiting for a train. Do you just want to go through the barrier and tap your card, or do you want to wait 10 minutes for your bitcoins?”

Although Cairns claims about confirmation times are true, there are a number of workarounds for this problem currently in development. Off-chain solutions, such as Stash and the Lightning Network, currently hold the most promise in this area. There are also plenty of options for merchants to accept unconfirmed transactions.

In addition to her points on the technical workings of Bitcoin, Cairns also discussed the issue of the cryptocurrency’s association with Silk Road and other controversial use cases.

MasterCard Testing Blockchains

When asked about blockchain technology, as opposed to Bitcoin specifically, Cairns’ tone completely changed.

“We’re looking at blockchain right now in all sorts of different ways in our labs because we think blockchain is basically a value transfer system,” she said. “It’s pretty neat, actually. There’s nothing wrong with using new algorithms to actually move money. We think that’s a great thing; it’s just how you actually manifest it and make it work, along with the way you have to handle all of the world’s regulations to make it effective, safe and fast, that is the issue.”

Although Digital Currency Group (DCG) founder Barry Silbert is quite bullish on bitcoin as a currency, that didn’t stop MasterCard from investing in the Bitcoin-focused investment company late last year. MasterCard Chief Innovation Officer Garry Lyons recently told Business Insider, “[DCG] is connected to 15 different others and they have their fingers in the right pies, so we’ve got the right engagement right now to see people experimenting with the underlying tech.”

TransferWise CEO Questions MasterCard President

Much like MasterCard’s Cairns, TransferWise CEO Taavet Hinrikus is more interested in blockchain technology than Bitcoin. In fact, he thinks MasterCard should, perhaps, be worried about this new innovation.

“With blockchain, I think that’s much more exciting,” Hinrikus said during the panel. “I wonder – could we see a world where blockchain disrupts MasterCard?”

Cairns responded that MasterCard would simply adopt blockchain technology if it were that disruptive. “That’s why we’re looking at it,” she said.

The MasterCard president added that the company does not care much about the technology behind payments as long as people continue to use their network.

“It doesn’t make any difference to us if we’ve incorporated it into part of the way we move money [around] our network, the actual swiping, tapping or sending a message over a phone or computer; it’s just a form factor. That doesn’t matter,” she said. “It’s the interconnectivity that matters and the safety and security.”

Any company involved in payments, banking or other aspects of finance now has the blockchain on its radar, but only a handful of them are interested in Bitcoin’s public, open and permissionless ledger. The interoperability between Bitcoin and permissioned ledgers will be a trend to watch in the coming years.

Kyle Torpey is a freelance journalist who has been following Bitcoin since 2011. His work has been featured on VICE Motherboard, Business Insider, RT’s Keiser Report, and many other media outlets. You can follow @kyletorpey on Twitter.

Photo World Economic Forum / Creative Commons

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Modeling the Blockchain for Business Use

This is a guest post by Senthil Radhakrishnan, the Vice President and Head of Capital Market Solutions Group at Virtusa. Senthil has 16+ years’ experience focused in capital markets technology with investment banks such as UBS, JPMC, Barclays, and others.

As one of the hottest technological developments making the rounds in financial circles, the blockchain has a lot of people hooked. But there is not yet much clarity on how blockchain technology will impact private business, given that it is so unlike traditional IT architectures.

Private blockchain applications are amalgams of cryptography, immutable transaction log/ledgers, federated transaction approval mechanisms, distributed databases and peer-to-peer software. Since any proprietary business function using blockchain technology is by definition private, the network is only accessible to a limited audience. That’s why it is a good idea to consider the following elements when deciding to test processes on a blockchain model.

Not all functions should be made on the blockchain. High volume non-transactional data attributes (like trading instrument data) are stored in platforms like reference data systems. Such systems can sit outside the blockchain. Avoid the redundancy of duplicating a large data island – like reference data – across many nodes.

Blockchain systems will run along those in the non-blockchain world. To enable this, there has to be free flow of assets between the two ecosystems. Some issues to consider:

How does one control the quantity of assets to be issued?Assets may have to enter and exit the blockchain system; how can this be tracked?The life cycle of an asset.

Protect against user mistakes. The nodes/wallets in a blockchain are referenced by public key hash. This makes the system susceptible to mistakes. On the Internet, domain name services make it easy to remember names instead of numeric IP addresses (e.g. 192.168.2.33). A similar paradigm is required here.

Keep it lightweight. The blockchain ledger replicates itself on every node as new blocks get added.In a business model, there could be a need to store a lot of information, but items such as documents can make the blockchain heavy. Linking it to an external data storage system solves this problem. The downside of an external data source, however, is lessened reliability given that the data is not all in one specific place.

Managing a private key can be unwieldy. In a large organization with processes and policies this can slow things down. Some critical questions to ask: What happens if the key file is lost or is corrupted? Who will have access to the key file? It needs to be both secure and available for extensive use.

Blockchain as a database is still limiting. Private blockchain applications are being used like databases by some businesses who benefit from blockchain features such as replication and immutability. But limiting data storage to the blockchain for any large-scale application may not be practical. Most businesses also need typical database features, including querying, reporting, triggers and mapped relationships between entities. This could add to the complexity of building large-scale systems.

Allow realistic timelines. A typical private blockchain use involves a set of organizations agreeing to use the same software. It’s common to see organizations communicating or interfacing with each other using a common protocol/data format. Getting an agreement on common protocol between organizations takes several iterations and time. Convincing organizations to use the same blockchain software stack is an even bigger challenge.

Choose wisely between the Bitcoin blockchain and custom blockchain software. Extending the existing Bitcoin blockchain software to serve business purposes is a logical first thought. Bitcoin has evolved over time and is tested, robust and stabile. But Bitcoin’s blockchain has features like public read access which may not be suitable for certain business needs. Too much customization or redevelopment of the original blockchain introduces the risk of an untested complex technology platform. So give due consideration to the pros and cons of Bitcoin workarounds vs. untested custom blockchain software before selecting a model.

The greatest features of the blockchain – its openness, democratic nature and potential efficiencies – have endeared it to everyone. One can only hope that a future blockchain-driven world retains these principles. Focusing on closed-door startups will in effect transfer the centralist nature of existing business models (like government, banks, etc.) to private software entities. We’ve seen this already as banks pour money into blockchain startups whose software isn’t in the public domain. A more open and crowdsourced approach to address the business challenges in mass blockchain adoption is the better long-term option for leveraging the tremendous potential of blockchain technology.

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