Sunday, February 5, 2023

AIG: Private Blockchains Will Take Over the World, Bitcoin Not Needed

AIG: Private Blockchains Will Take Over the World, Bitcoin Not Needed

Global Macroeconomic Investor’s Raoul Pal has commented on the news that AIG is running an insurance contract on a private blockchain, noting that no large companies use a public ledger such as Bitcoin, instead preferring the use of private blockchains.

Also read: Bitcoin Price Headed to $3500 After Lull in Bull Activity

Private Blockchains, No Bitcoin

Upon selling off his bitcoin stash for a monster profit, GMI’s Pal changed his tune on the prospects of cryptocurrency, citing proliferation of multiple competing blockchains and questioning whether large companies would be comfortable giving up their advantages for the sake of using a public ledger.

This is the thinking behind initiatives such as R3, where a number of banks sought to build a network that enables efficiency gains without ceding control to decentralization. Yet R3 has seen a number of original participants withdraw, something that many Bitcoiners believe highlights the fact that banks do not trust each other, and therefore the project is doomed.

But it was always certain that many large companies would shy away from such a decentralized open system. The ‘blockchain not bitcoin’ mantra makes legitimate sense for many as they do not need to worry about transparency, and they can still maintain their fee-based business model while making notable improvements in trust, speed and delivery. Pal believes this illustrates that Bitcoin is not the dis-intermediating force that many think it is.

AIG’s first blockchain based policy, written to Standard Chartered, hopes to pave the way in turning processes that can take months into mere days. Multinational contracts encounter a lot of friction and regulatory requirements, but by holding a “master policy” on a blockchain that links to local, regional contracts, they believe they can significantly reduce time and cost.

The introduction of the technology is bad news for insurance brokers, the effective middlemen in the industry. Despite the cost of insurance declining, insurance companies claim brokers are extracting more fees and as such, a bigger slice of the revenue. The use of blockchain technology may signal an end to that.

Pal: Bitcoin Good for Private Wealth Storage, But Not Corporate Operations

Yet, as much as Pal sees this as a negative for the future of Bitcoin, perhaps the best use cases are for storing wealth outside of government control few hours earlier he also noted that the U.S. Postal Service faced billions of hacks in 2016 alone.

This illustrates one of the most successful aspects of the Bitcoin network — it is the most powerful computing network in history by a large margin, and its proof of work based mining system has provided excellent resilience against attack. Large financial institutions, on the other hand, routinely lose customer information in data breaches. These range from credit card numbers to account details to millions of dollars (as was the case with the Bangladeshi Central Bank).

Part of the reason large firms may be reluctant to use a public blockchain is their lack of tried and trusted security procedures that would work on a public ledger. Some, like the University of Chicago’s Ari Paul not only believe for some hedge funds and family offices, this is just around the corner. Paul, who manages $7.5 billion, also believes that bitcoin may find a more suitable use case with wealthy individuals as an “unseizable” store of value, than with financial institutions that are already embedded within the system.

Do you think private blockchains are better for companies than Bitcoin? Share your thoughts in the comments below.

Image via Pixabay.

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