According to a new opinion piece by Michael J. Case, senior advisor for MIT’s Digital Currency Initiative, the news about Societe Generale issuing a security token bond has long-term consequences. Most importantly, it may signal to other banks that Ethereum is “the one.”
The news that Societe Generale would be issuing $112M in bonds using smart contracts on Ethereum was something nobody was expecting. It was one of the most significant announcements in the security token space so far this year, undoubtedly. However, what’s most significant is that the investment bank decided not to issue these tokens on their own private blockchain; instead, they opted to release it on the public, permissionless Ethereum blockchain.
It’s a small step, but it may signal something greater at play here: banks may be changing their tune on Ethereum.
At least that’s what senior advisor for MIT’s Digital Currency Initiative Michael J. Case writes. In a newly penned piece published in Yahoo Finance, he makes the case that, despite banks repeatedly arguing permissionless blockchains are unworkable for them, Societe Generale has defied them.
Societe Generale Is Betting that Open Systems WIll Win Out in the End
If Societe Generale is indeed placing a bet that the future of digital finance will be open and permissionless, we have to consider why. If we go back to the nineties, as Case writes, it’s clear who won the first battle of the internet: public, open internet beat out private, closed intranets like AOL and Prodigy. It became common knowledge that the new architecture for worldwide information sharing needed to be just that, open and global.
Will history repeat itself with cryptocurrencies? Will banks soon realize that the same logic of the internet must apply also to the transfer of money? The issue is that the unique sensitivities of the current regulatory environment favor the closed approaches by banks to protect themselves against competitors. That’s why so many banks, despite “adopting” blockchain technology, have just created their own mysterious private blockchains. That’s not much of a revolutionary step for the industry as we would have hoped.
However, at the end of the day, “money is just information,” Case writes. And communities will naturally gravitate towards free communities if given the option.
The question then remains: will the majority of banks rejecting permissionless blockchain systems have enough bargaining power to crowd out those banks that do prefer open blockchains like Ethereum?
Ultimately, what we are looking at is a long-term battle for the soul of the next digital revolution. It’s a question that strikes at the heart of the cryptocurrency revolution: do we even need closed, private blockchains to begin with? Societe Generale told us recently, “no!”
Banks are using closed blockchains for anti-competitive, paranoiac ends. However, in the end, Case believes that an open blockchain-based internet will prevail.
Do you agree with Case’s arguments? Will permissionless blockchains become the standard for banking, whether major banks like it or not? Let us know your thoughts below.
Image courtesy of City AM.