The Existentialism Of Bitcoin, Blockchains, And Distributed Ledgers

I’ve been spending lots of time on the road recently at planning sessions, working group meetings, client visits, and conferences, and I’ve been hearing a lot of things from credit union leaders. One frequent question regards blockchain technology and to be blunt about it whether credit unions should really care.

Interestingly, this doesn’t seem to be a CEO-level question just yet. I’ve been hearing about it from IT folks, operations/payments people, and the occasional board member. And happily, most of them have moved beyond simplistic questions about bitcoin. This isn’t about some flighty, mysterious, crypto-currency beloved by speculators, techno-nerds, nefarious actors, and the tinfoil hat brigade, it’s about the future of data security and all that represents.

Let’s be clear, the technology that makes bitcoin possible through sufficiently secure shared ledgers can do the same for any other dataset, including all those that represent each of us to the world beyond our personal connections.

It’s relatively easy to see how that could mean quick, safe transactions off the long-established rails, but squint a little bit and you can even imagine that meaning a world where identity theft is no longer possible. Or perish the thought a world in which individuals rather than monolithic for-profit corporations own their own datasets AND can control access to them.

As risk arbiters and managers, it may be far-fetched to believe that credit unions might be interested in a world where their members rather than their institutions own risk management-related personal data, but from a cooperative standpoint, the picture is different. Our primary long-term competitive advantage our singular competitive differentiator is member-ownership.

We put a premium on building mutually beneficial long-term relationships with our members. In a world where people, not companies, own the data, a trusted relationship with a company you own like a credit union becomes worth its weight in gold for the average person because they can’t reap the benefits of data ownership as individuals.

With that as background, questions about blockchain technology take on a different cant. Suddenly, we are not just talking about a new payment rail or better cybersecurity, but the ability to redefine the relationship between a cooperative and its members.

I think this is what’s motivated a broad array of credit union thinkers, innovators, entrepreneurs, and provocateurs to come together as CULedger to pursue the not-yet-fully-defined promise of blockchain; totally secure data, paired with the capacity to leverage it essentially risk-free, is unprecedented and cannot be ignored.

For the rest of us, this begs some important questions.

• Is there a play for credit unions in the arena of personal identity self-management? (That’s the core argument of John Best and other first movers among the CULedger mafia.)
• Even if not, do we need to be in this space to protect our interests, given the gazillions that megabanks are spending to build out this technology?
• At its core, is this just another payment rail and, if so, can we count on rapid migration to open systems and white-label offerings?
• Either way, is the credit union standard of fast-following (third-to-fourth tier adoption) going to be good enough this time? (Or, asked another way, is this just another tool where our cooperative structure allows us to be laggards or is this a tool with the threat/promise to realign that norm?)

Personally, I don’t see the U.S. financial services industry and regulators allowing the emergence of an exclusive payment rail, but it’s reasonable to be concerned about the timing or cost of access to a new rail and the the potential of associated disadvantages.

Further, it’s fair to ask a couple of other questions regardless of whether we are considering immediate entry into the technology sweepstakes or preparation for the world after the technology is fully developed.

• Does the unique nature of financial cooperatives create some imperatives for this type of solution that may not be accounted for if either technology or commercial development is left solely in the hands of for-profit enterprise?
• Do the characteristics of this technology lend themselves to advantage(s) or differentiation(s) for credit unions from banks?If (potentially) so, does exploring or pursuing them require either developmental knowledge of the technology and/or early preparation which would suggest diving in now despite our analysis that it would not otherwise be critical?
• Are there things the technology would permit that credit unions could benefit from that are not likely to be pursued by our bank competitors and, if so, would this warrant acting now?

I don’t have answers for these questions. But I’ll admit to being interested in a question that’s even more existential than any of them: How, as an industry/movement, do we address them?

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