A blockchain decentralises the transfer of digital objects — or does it?

The basic idea of blockchain technology is that it is supposed to let people transfer digital objects — money, securities, whatever — like they’re physical objects.

Transfers of dollars rely on banks, and central banks, to keep records of who has all the money; we have to trust them; we don’t get to hold our dollars (except a few paper bills) ourselves. Transfers of securities rely on intermediaries — brokers and the Depository Trust & Clearing Corporation (DTCC) in the US — to keep records of who has all the stock; we have to trust them; we don’t get to hold our stocks ourselves.

Transfers of bitcoins don’t rely on any trusted intermediary, the distributed ledger — the blockchain — of bitcoin transactions allows people to transfer bitcoins between themselves without trusting a third party. Anyone can use the ledger; you don’t have to be a member of a selective club. The blockchain idea is about decentralised, permissionless transfers of value.

So it’s weird that basically every well-publicised experiment with blockchains in finance is done by a centralised intermediary. There is the endless chatter about central banks, which already keep the ledgers of who has dollars or whatever, using blockchains to keep those ledgers. And there are endless consortiums of big banks who want to build permissioned blockchains for their own use. And DTCC, which is the main centralised intermediary for US securities transactions, is endlessly announcing its own blockchain experiments.

There was one last year about repurchase agreements, and now there is this: Wall Street’s largest back-office processing service is partnering with IBM to upgrade how payments and record-keeping for credit-default swaps are handled by putting the system on a blockchain by early next year.

DTCC, the New York-based utility that settles and clears all stock and bond trades in the US, is seeking to reduce redundancies and cut costs in the system that manages $11.7-trillion in outstanding credit swaps, the company said on Monday.

One aspect of blockchain is technological: it is arguably a better way to build a database, for some purposes. Maybe one of those purposes is keeping track of stocks or derivatives or whatever. But as I often say when I read these stories — you could just have a list. DTCC could just write down a list of who owns the stocks. When people trade, they could just tell DTCC, and it could update the list. That’s what DTCC does now, for stocks, and, you know, it’s fine. Maybe the blockchain is better. "Because the database will be edited in group fashion, the hope is that it will provide a more streamlined and reliable source of information," said the New York Times.

Bloomberg notes: trade processing is now done electronically, but banks and money managers maintain their own record of trade details in private databases. That means details must be reconciled among the different users, which takes time and can be error-prone. A distributed ledger, on the other hand, allows all those users to share the same exact data so that confirmations, payments and other processing can be done in seconds rather than days.

Another aspect of blockchain, as I often emphasise, is sociological: blockchains are cool. If you announce that you are updating the database software used by a consortium of banks to track derivatives trades, the New York Times will not write an article about it.

If you say that you are blockchaining the blockchain software used by a blockchain of blockchains to blockchain blockchain blockchains, the New York Times will blockchain a blockchain about it.

But there is a third aspect of blockchain, at least as originally conceived by the bitcoiners of the world, that is sort of philosophical, or economic. It is the idea that trade should be decentralised and permissionless, that people should be able to do electronic transactions without relying on a powerful incumbent intermediary. If I want to sell you a share of stock, I should just be able to do it, without bringing some consortium of big banks into it. The consortiums of big banks, and the utilities they have created, obviously do not share this philosophical viewpoint. And so it has vanished from most of the announced blockchain applications. You and I can’t just walk in and trade derivatives over the new DTCC blockchain: it’s for the big incumbent players who are part of the DTCC consortium anyway.

There is no disruption, no disintermediation. The blockchain here is about perpetuating the existing intermediaries, not about replacing them. DTCC knows it: "A lot of people are talking about how they’re going to make us disappear," Michael Bodson, CEO of DTCC, said. "But here we are, one of the first users of the technology."

Users of the technology, sure. But not of the idea.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

• Levine is a Bloomberg View columnist. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz, and a clerk for the US Court of Appeals for the Third Circuit

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