Heard of th’internet? Here’s Blockchain!


blockchainYou remember what it was like in the early nineties when we started learning how to use a mouse and send emails? Do you remember searching on Yahoo? Do you remember being told that one day we would buy things on the internet. It seemed far fetched but we went along with it because we had IT departments who got us started.

I feel the same way about the blockchain. I got put off by tales of crypto-currency , just as I was scared of the world wide web. I still am scared – because I don’t understand the general ledger and how it operates (in detail). I am not going to be coding and I’m not going to be mining. I’m happy to be a worker bee , digging the honey.

Conceptually it’s great

For 200 years the cost of intermediation in financial services has remained roughly 2%. The economist Thomas Phillipon has shown that despite the advances in technology, the cost of employing the various people needed to run (for instance) a pension fund, hasn’t changed. When an efficiency has come along, along comes someone to charge you to exploit that efficiency.

The current “chain” is made of people – expensive people- all of whom aspire to drive a Ferrari.

What the Blockchain does is replace those people with code that records and validates the start and end of a transaction. The code is immutable- it cannot change – it cannot be disputed – it is.

The rules governing how the transaction is conducted and recorded can be overseen by a regulator like the Bank of England, or the Pension Regulator or the FCA.

But apart from building the Blockchain and overseeing it, the rest of the stuff in the middle falls away. All the faff associated with executing a trade, all the time and energy associated with compliance falls away, the Blockchain replaces it.

In theory…

A truly transparent system

Yesterday afternoon I had a conversation about whether or not I could see the Investment Management Agreement that governed the price of services payable by one of our largest master trusts – to a captive insurer to buy the services of a global fund manager.

It was agreed that to get any understanding of what this document said, I should engage with the FCA and a private firm of competition lawyers and (when I’d worked out what my legal position was), I should approach a member of the master trust’s management team on how to engage with the trustees who would establish (presumably with their lawyers) whether I might be privileged with information about what people applying to this mastertrust might actually be paying for fund management.

The Blockchain shortens the paragraph to a short line of code. You are buying something, the price is recorded in the Blockchain, you access the price by decoding the information.

Nothing need be so secret that you have not got a right to ask for it, and when the answer is no, it is because there is – within the chain – a deliberate barrier with a definitive reason for its erection.

I suspect that it is much harder to hide what people are paying when you have to state the reason, than when you can’t find a way to ask the question!

Commercially it could be great

For companies whose value is in the provision of intermediation (platforms, compliance, broking, trading and marketing) the Blockchain will be a disaster

For companies whose value is in intellectual capital that delivers outperformance, the Blockchain will be a boon.

The large fund manager that delivers market returns at an “active” price will have nowhere to hide, the Blockchain will embarrass it into either dismantling its current apparatus or closing down.

The boutique manager that creates advances in a market indices to deliver less riskily, the true market return, will prosper – especially if all they are charging for is the delivery of the algorithm through the Blockchain.

The Blockchain will decimate financial services, it will bring costs down by bringing down the cost of human capital doing menial jobs. Concersely it will make those people working in financial services as valuable as the handfuls of folks who run nuclear power stations (Homer Simpson excluded).

Commercially it will bring down the cost of financial services by so much that Thomas Phillipon will have to re-write his book!

Am I right?

Can you prove that I am wrong? Could I have proved that the crazies who told me that the internet would change my life in the early nineties – would be right?

I see a problem – we pay too much for simple things like buying and selling units in a pension scheme.

I see a problem – I have to pay an adviser to work out how to manage my tax affairs.

I see a problem – I have to enter into conversations with lawyers and regulators to find out how much my clients are really paying for investing in a master trust.

I see a solution – I see people ready and able to apply Blockchain technology to eradicate the inefficiencies that plague my work life and  prevent me enjoying my playtime as I could.

Why would I not want to talk to these new crazies? Why would I not want to use my blog to promote their crazy ideas. Graham Wiskin, my IT officer in the early nineties, comes into my head every time I think that technology has gone too far. He knew then and probably knows now that everything can and will be changed if we adopt the new ideas that drive forward our lives.

Remember this song? – “they’ve gone about as far as they can go” – yeah right!



About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in blockchain, corporate governance, pensions, Ros Altmann, the pitch. Bookmark the permalink.

1 Response to Heard of th’internet? Here’s Blockchain!

  1. DaveC says:

    Blockchain technology will be a double edged sword depending upon implementation and use.

    Distributed people powered blockchain ledgers will be impressive, but reinforce the stance that communities can increasingly manage themselves without a bloated regulatory system and governments.

    Centralised government controlled blockchain ledgers will actually probably cause the inverse, just they’ll be cheaper to run.
    So you may get some savings as a consumer, but in practice it’s mostly providing more profit margin for service providers.

    Fundamentally, all blockchain technology is a ‘digital’ safety deposit box room that is so huge that you just remember which box you have put your information in, but they don’t have keys. The sheer quantity of boxes is your protection.

    In the case of bitcoin (if my maths is correct, the numbers are huge), the number of roughly standard sized safety deposit boxes would fill 16,238,907,081,454,476,868,929,831,475 planet earths from core to crust.

    This means there is no ‘protection’ except statistcal obscurity of the information you store inside this system.

    The dangers of a system like this are that where you stored your information is important to be kept ‘safe’ because if you lose that data, your data is really lost forever.

    So someone stores that location. And that is the weakness in the system. Do you store it? Or a centralised body? One that hopefully won’t get hacked? Do several places store it? If so that is getting increasingly dangerous as it could be leaked.

    So if data is leaked, is there backups in place? Insurances? Compensations?

    Bitcoin currently works so well because there is NO protection. You are the master of your data and if you lose it, or leak it, it’s your fault and your loss.

    But if it IS centralised and controlled, then ALL the systems of regulation and control and insurance and so on will come back.

    I’m in a hurry so I’m babbling now… but it’s not as clear cut as ‘this is better’

    I’d say anything distributed and run by society as a mutual system without profit or protection, great.
    Anything centralised and run as a business for profit, not so great, or even worse than we have now.

    Since governments don’t the idea of becoming obsolete I can see these systems being regulated and brought into the protectionist fold.

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