Editor’s Note: A version of this op-ed first appeared on LinkedIn . While core banking systems are getting harder and pricier to maintain in a digital age, some believe the blockchain could serve as the antidote. For instance, a London-based startup recently revealed it has been working on a blockchain-based core banking system for the past two years – an interesting announcement as I’ve had many conversations theorizing what a blockchain-based banking core might look like and if it could improve core banking systems. But while the idea sounds great, distributed ledger technology is initially better suited to disrupt interbank systems rather than core banking. Although most core banking systems were engineered decades ago, they were built for speed. To this day, they typically run reliably. Core banking systems also support thousands of business rules and functions, including complex regulatory compliance functions. Understanding the current state well enough to design any type of a replacement in and of itself is a massive effort. In a blockchain model, banks could use the distributed ledger technology for key functions of ledger (balances specifically) and transactions. Blockchain’s ability to timestamp transactions could be a much more authoritative means of recording transactions rather than today’s relational database that can be accessed and manipulated. The blockchain’s added degree of security could prevent bad actors inside of the bank from manipulating accounts at the database level. However, if the blockchain were just an internal design function, transactions with external accounts would not be reflected beyond the originating bank. The cryptographic proof couldn’t really be end-to-end unless everyone doing every kind of transaction moved to a blockchain. You lose some of the security benefits with an internal blockchain transaction tied to a regular external transaction (such as ACH or Swift), or a second blockchain transaction on […]
