Why did we choose Ethereum?

As a banking consortium why did we choose Ethereum over other blockchains?

We’ve always said “You can’t spring a blockchain on anyone”. Blockchains by their nature are more secure, more reliable and therefore more useful as more nodes connect to them.

In the consortium space, the same is true. You can’t build a blockchain on your own. As financial institutions in South Africa, we came together several months ago to start working on a blockchain that we could all use to test concepts, experiment with technology and understand the implications of working across a number of institutions on a distributed shared ledger.

The first question we had to ask ourselves was “What blockchain do we use?” This is not a trivial question. There are a number of options that we looked at. We used various questions to build a filter through which we examined the blockchains on offer.

IS THIS A “FREE TO USE” (I.E. OPEN SOURCE) PRODUCT?

While we as banks generally don’t use open source products and look for licensed products because of the support, quality etc that is included with those products, this project was different:

We were not looking to build a production system, we were looking to pilot a number of concepts.
The licensing costs become prohibitive as the number of institutions wanting to get involved increased.
This is such a new technology that we felt that paying for a product that was still being developed was not ideal.

This ruled out a number of solutions that were technically sound but either had prohibitive licensing costs and/or limited access to the source code.

CAN THIS BE USED FOR BANKING TRANSACTIONS?

While bitcoin is the biggest blockchain network out there, the bitcoin protocol is not designed for banking transactions. The bitcoin network works brilliantly for bitcoins. It is a single asset blockchain and does payments extremely well. The problem is that the majority of banking transactions involve more than one asset.

Bank 1 purchases a bond from Bank 2 for x million.
Bank 1 places a Treasury Bill with the Central bank on repo for 1 week and then settles with interest on maturity of that repo agreement.
So we ruled out a few blockchain solutions where there was limited support for contracts and/or no multi-asset features.
Blockchains like MultiChain, while they are simple to use, did not have contract support.
There was an option to look at Counterparty style assets on the bitcoin blockchain, or use coloured coins, but these were not ideal solutions and there is limited smart contract support.
We needed a blockchain that supported contracts and multiple asset types.

ARE THERE DEVELOPMENT TOOLS THAT SUPPORT THE BLOCKCHAIN?

While there are many blockchains out there, not many have a mature set of development tools to support them. As a developer, building on top of blockchain, you still need to be able to:

Create code (contract code in the case of blockchains).
Test that code.
Put the code into source control.
Deploy the code (core blockchain code as well as contract code) into a test environment.
Deploy the code into a production environment.
Monitor the blockchain and monitor the contracts running on the blockchain.
Most blockchains are still new (the bitcoin blockchain has only been running since 2009 and it is the oldest blockchain out there). The tools supporting those blockchains are even newer and in many cases are non-existent.

IS THERE A COMMUNITY AROUND THE TECHNOLOGY?

This was probably the most important question we asked. Because of the network effect of blockchains, the more people working on a blockchain, the more other people will want to work on that blockchain.

Many blockchains listed on coinmarketcap for example have small teams working on the technology. Some of the bigger cryptocurrencies have larger teams (bitcoin and litecoin for example).

The one community that has really exploded in the last year is the Ethereum community. It is also an extremely diverse community.

The Ethereum foundation is focused on the core technology. There are multiple teams working on multiple client implementations (Geth, Parity, CPP etc). There are language experts working on JIT compilers and interpreters. Dr Greg Colvin for example has been working for years on various compilers and is now involved in fine tuning the Ethereum Virtual Machine (EVM) interpreter

Companies like ConsenSys, Monax Industries (Eris) and IPFS are working on applications based on Ethereum.

Banks and banking consortia are using the platform and contributing back to the platform.

The community is vast, specialised and growing and was one of the main reasons why we decided to put Ethereum at the top of our list.

CONCLUSION

While this technology is still very new, the landscape is already starting to take shape. In our view, Ethereum ticks all the boxes when it comes to a blockchain technology that can easily be used by a banking consortium.