The CEO and founder of cloud accountancy software giant Xero thinks blockchain, one of the hottest concepts in technology at the moment, won’t succeed in banking because of “surveillance culture and tribalism.”
Rod Drury told Business Insider during at interview in London this week that he is “not really” excited by blockchain, a kind of database software developed to underpin digital currency bitcoin.
Drury told BI: “I think it’s mathematically interesting but I think the nature of the world at the moment — surveillance culture and tribalism — means it’s very unlikely that a distributed view of the money supply is ever going to happen.”
Drury mentioned Brexit and “Trump-ism” as examples of the rising tide of tribalism globally. He did not elaborate on “surveillance culture” but it’s easy to guess at what he means, with government spying agencies like the NSA and GCHQ coming to the fore of public conversation in recent years.
These trends pose problems for blockchain because the technology is all about sharing data and information. A fear of surveillance and a culture of tribalism don’t do much to encourage sharing.
Blockchain is a type of database technology first developed to underpin digital currency bitcoin. Instead of one central database of who owns what, blockchain allows for a network of identical, linked databases that talk to each other and are updated simultaneously. Imagine record books that automatically update when one person makes a change.
Every time someone wants to make a change or add something onto the blockchain (the shared database), the majority of members of the network must sign off on it. This cuts out the need for middlemen in transactions, because the fact that everyone signs off means trust is built into the system.
By cutting out middlemen, cost is reduced. The process of the group signing off on transactions should also theoretically reduce error. These two key features make it hugely attractive to banks.
Banks and financial institutions are particularly interested in the technology, believing it can cut costs for things like share trading, trade finance, and even international trade. These institutions are spending thousands on proof of concepts, issuing countless white papers, and joining industry-wide bodies to figure out how to use the protocol. The World Economic Forum has also predicted that blockchain could become “the beating heart of finance.”
Bitcoin and those sort of things are interesting around the fringes. [But] it’s a very elegant solution that’s looking for a problem.
But Drury is sceptical. He says: “When it comes to money — centralised vs. decentralized — centralised normally wins because it’s so important to maintain the control of the entire system.
“Quite a few of the problems we’ve looked at through a blockchain lens — and again, love the maths of it — but when it comes to money it’s a largely centralised problem. With what’s happening around the world with intelligence and all those things, it kind of points you towards centralised.”
Bitcoin’s original blockchain is used to record bitcoin transactions — but the tech could theoretically be used to record just about anything that involves transactions. Applications are being developed for everything from share records to art and diamonds.
But Drury says: “Bitcoin and those sort of things are interesting around the fringes. [But] it’s a very elegant solution that’s looking for a problem.”
He added: “We’re always evaluating things… Never say never but we’re kind of waiting for someone to come along with a great application we can use.”
Xero is a cloud-based software platform for small and medium-sized businesses that helps them make keeping track of their finances easier. Founded in New Zealand in 2006, the company today has over 700,000 subscribers around the world. It employs 1,600 people around the world, including 172 in London, and has a market capitalisation of NZ$2.4 billion (£1.4 billion).
Despite Drury’s assessment that the world is becoming more tribal, he is optimistic about the prospects for his global accountancy software business. He told BI: “There’s an interesting dichotomy happening, the world is definitely becoming more tribal as you’re seeing in the US and here — no judgment on whether that’s the right or wrong thing. Yet these SaaS platforms are becoming more global. I think we have a role to play in cross-border trade.”
EXCLUSIVE FREE REPORT:
5 Top Fintech Predictions by the BI Intelligence Research Team. Get the Report Now »