While Goldman Sachs expects private or “permissioned” blockchains to dominate most commercial applications according to its recent research report, the banking giant admitted that Bitcoin is an “ideal vehicle” for public transactions between individuals who don’t know each other.”
‘Fundamentally New Type of Database’
A new “Profiles in Innovation” report from Goldman Sachs (GS) Investment Research states that blockchain technology has the ability to “drive cost savings” through process automation and “eliminating duplicate effort.” The investment banking giant notes that this “shared database” can potentially save capital markets $2 billion in the US and $6 billion globally per year.
To wit, the firm sees blockchain technology as nothing more than a “fundamentally new type of database technology.” And as far as Goldman’s interests are concerned such as high-volume commercial transactions and sharing data between partners, it expects private blockchains to reign supreme.
“We expect private or ‘permissioned’ blockchains to dominate most commercial applications,” the report reads.
Considering that GS took part in raising over $50 million for Digital Asset Holdings, a developer of blockchain technology for the financial services industry, and a $50 million for blockchain-based payments startup Circle, their preference for “permissioned” blockchains comes as little surprise.
The report further explains:
Private or ‘permissioned’ blockchains behave in the same way as the public blockchain, except that the identity of anyone who attempts to access the blockchain must be validated against a list of pre-validated market IDs. We believe that the vast majority of commercial blockchain applications – particularly in capital markets – are likely to use private or permissioned blockchains.
Bitcoin’s ‘Most Appealing’ Feature
Bitcoin, however, has been deemed by some experts to be much more than a “new type of database technology.” In fact, it has been lauded for its potential to democratize finance, protect human rights, and even reduce violence. This is because not only is it open-access or “permissionless” unlike the presumed GoldmanSachsCoin, but it also eliminates the need for “trusted” middlemen such as a bank. To wit, this enables it to be a pure, apolitical medium of exchange.
“In its purest form – as used by Bitcoin to create and track units of the crypto-currency – blockchain is a shared digital ledger of transactions recorded and verified across a network of participants in a tamper-proof chain that is visible to all,” the GS report explains. “Permissioned or private variations add a layer of privileging to determine who can participate in the chain […]”
Seemingly, the banking giant doesn’t see the appeal of adding 4 billion unbanked people into the global economy as much as serving its private clients. Stopping short of these “utopian” goals, GS declares that this innovation is “leaving behind its origins as the underlying technology of Bitcoin.”
Nevertheless, it does concede that Bitcoin has a clear advantage, at least as far as the wider public is concerned. Goldman:
The distributed ledger used for Bitcoin is a public ledger that can be read from or written to by anyone who wishes to transact, making it an ideal vehicle for public transactions between individuals who don’t know each other. In fact, the public nature of the Bitcoin ledger is one of the most appealing and novel features of the distributed database.
Nonetheless, GS explains that public blockchains would not be a good fit for “high-volume commercial transactions” where a certain level of trust already exists and where the parties would “desire transaction privacy.”
Goldman Sachs Looks Ahead
The report gives wide-scale blockchain technology adoption a time period of 5 to 10 years. It notes that broader acceptance could be slowed by scalability, privacy and standardization issues, commercial conflicts, and “regulatory oversight.”
However, GS sees potentially quicker uptake in the consumer-focused Sharing Economy with the likes of AirBnB and among social media companies who can use the distributed database for identity and reputation management systems. Forward-thinking startups could also grow the technology with “limited market adoption” in as little as 2-5 years, the report notes.