Financial institutions oppose blockchain technology to protect their revenue streams…Dr, Seyi Akindeinde

The Chief Technology Officer of Digital Encode, Dr Seyi Akindeinde, in this concluding interview, reveals why financial institutions are opposing the implementation of blockchain technology. Excerpts. 

 Let us delve into blockchain before we talk about the various blockchain security issues. 

Okay, blockchain is not entirely different from what is available. The technology works with databases. A database is centralised storage. Only human beings control it. Therefore, when they conceived the blockchain idea, it was to eliminate the central person managing it. That leads to what we call a central point of control. I will explain it. During the election, there was the issue of the results not being collated well.The problem emerged because they said INEC and people were not uploading data and blah. It was because it is a central point of control. As long as you have a human being controlling the server, you have a central point of control. So in the case of blockchain, why do we have to have a central point of control?

Why not?

Why don’t we have a clear ledger? It will be open to everybody in the world. You will be able to see the ledger. One single human being will not be able to control the data. Because when you control data, it means you can manipulate data. That is what led to the grouping of information in blocks and chaining them. Then it becomes an immutable ledger, which no one can alter in any way. Now, blockchain moves value as opposed to moving information. That is essentially the whole idea. It stops anything that has to do with centralisation. On the other hand, having to depend on one person. For instance, when you are moving money, if you think about it, you and I can send an email from Nigeria to the US or anybody anywhere in the world. The recipient will get the email in a second. You can make a call to any number in the USA or Europe. Your target will get your call. However, if there is no mechanism where you could send money from Lagos to Ghana. Why? Because there are central bodies.

You must go through your bank; your bank will go through a corresponding bank. If there is a network failure, maybe the fund has left your account, but it has not reached the corresponding bank, the other party will still not get the fund. Even locally, when you send some funds and sometimes the other party does not receive it. However, your account would have been debited. In such a situation, where is the money? You cannot trace the money. It is because it is a black box. There is no way you can know the location of the money except if you call your bank. Then your bank will tell you, oh, we need to investigate. However, look at the examples of email, phone calls, and the even internet. There is no such issue. That is what blockchain has come to rectify. That is why, when we spoke about cryptocurrency, which allows us to move through the medium, there is nothing like transaction failure, which is why it is a hotbed for scammers. If I send funds to you, you cannot claim it. Now, I can send money to you and you can claim it even if the money has landed in your account, you can deny it. To prove it, I will need you to go to your bank to go and print your account statement. That is a long thing. It uses cryptography. It ensures that if I send cryptocurrency to you it is definite that you will receive it. 

 What is unique about it?

Blockchain solves the challenges with traditional finance. Why is it that when you visit the ATM, plug in your card, and request N10, 000, you are debited when in fact you have not received the fund? You have to wait for a while and the bank would check the system to confirm your statement. Why does that happen? Because the banks have a process that they call, “it is debit before credit.” Whatever transaction you do, they debit you first before they credit it. In the process where your account was debited, there could have been a network failure when your ATM card was in the system. Then the cash would not come out and you would leave without the cash. Blockchain now says why we must have to have debit before credit. They now say let us do both the credit and the debit in one transaction. That is why you would not have a network failure. It is either when the network goes down you would not be debited or you will not be credited, but if the network is good, once it leaves your wallet automatically the recipient will receive it. That is what the blockchain said.

That is why people are using it to move value. That is why people are now saying you can use blockchain technology even for things like voting. When we had issues with voting before, or maybe in your polling centre 50 people will vote and when they count the votes, you have 30 votes. That is because somebody is manipulating the data. But with blockchain, if everybody was voting on the blockchain there’s no way you can manipulate it. Because it is not a human being. It has those nodes. It is transparent. Everybody can see it. There is no need to call the bank. Secondly, I do not even know whether the recipient is telling lies. Because when you make a transaction, remember that there are five things involved. When I send money, let us say from me to you, I can use bank A or use bank B. I can visit my bank. I am number one. My bank is number two. Then from my bank, the system is called a switch. Because if I transfer money to you, let us say, I want to transfer N10,000. Only my bank would know I have the N10,000. The other bank does not know. The other bank needs proof. What the banks do is there is a central switch – like a man in the middle – that coordinates the activities. It passes the message across. If there is a failure, if I send you N10,000 from my mobile app, how do I know whether the failure is not between me and my bank or my bank and the switch, the switch and your bank or your bank and you?

There is no way. That is why whenever a bank customer loses money, when the bank debits you before crediting you, or when the bank credits you before debiting you. That is why it takes seven days for the bank to reverse the transaction. Because the banks need to investigate the point of the failure. With blockchain technology, there is nothing like that. There is no failure. No settlement. No clearing. That is why the technology is making waves. People are saying we can use this technology to do things. That is why many central organisations do not like blockchain. Because it takes out the services, I talked about. It is similar to email and post office. With an email, I do not need to write a physical letter, buy a stamp, and visit the post office to post the letter. The post office makes money this way. For corporate organisations in the finance value chain, that is where the revenue comes from. That is why they want to stop blockchain.

The post office has redefined the industry. It now moves parcels. That is the same way financial institutions will rejig their offerings. Maybe instead of offering just a transfer, they can come up with another service that the blockchain may not be able to do.