SAN FRANCISCO -- During a panel session on blockchain technology at the latest Payments Innovation Alliance meeting, the topic of standards for the innovative technology came up. While some attendees were skeptical that banks could come up with workable standards
for blockchain in a reasonable amount of time, at least one participant was optimistic. Granted, he works for a company that develops blockchain technology—but he still offered important insights into how standards could, and should, come about.
“When financial institutions get aligned around a common cause, it's much easier to develop standards than it used to be,” he said. “The reason why is, you’re all working towards the same end game.”
He cited NACHA—which is funded by banks—as an example of this. “NACHA is a standards organization,” he said. “They actually facilitate rules that take a while to get through the process, but they do a good job of it. Even though people might say it’s somewhat slow, it actually pulls in all the thoughts of the ways people are thinking about it.”
He added that other standards bodies out there, like the International Organization for Standardization (ISO) in its development of ISO 20022, have done a great job of practical application for standards. He stressed that the best case scenario for blockchain would be for banks to build out the technology and determine the business cases first, and then develop the standards.
A banker in attendance agreed, noting that some more recent efforts in the payments space, like Faster Payments in the UK and SEPA in Europe, which reflect a willingness by banks to build out standards as they are needed. “These protocols were brought together and work well,” she said. “Institutions coming together and saying, ‘Let’s define a standard in the abstract that meets all of our business and strategic goals’ is unlikely.”
But it’s important that banks don’t put the cart before the horse, the blockchain guru stressed. “I’m of the opinion that banks aren’t going to be able to create a standard in advance,” he said.
While he does believe that consortiums like R3—which is working on ways to create blockchain standards—are good because they create a shared vision of the future, once banks start writing out a protocol, they could run into trouble. “So what I think will happen is, the work financial institutions are doing will lead to production networks,” he said. “And you’ll end up with three or four different standards that all kind of look the same.”
From there, the blockchain developer believes harmonization and standardization will come. “It will happen the way we see it in most protocols, where it comes later, because there’s a need,” he said. “Trying to do it in advance before there’s a single production network in the world other than bitcoin—trying to create a standard before we do anything else—is a mistake.”