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“The global economy works 100 times better because it can use this new technology to drive money in an unauthorized, programmable way.”
– Jesse Pollack
Imagine Twitter stopped posting during the day and released it at 2am every day instead of publishing the world’s current of consciousness in real time.
Or, if the New York Times stockpiled journalist’s daily output and published it in one daily batch.
This is a pre-internet dystopia where our banking system still lives.
Credit cards, Venmo, Apple Pay make it feel It’s smoke and mirrors, just like sending money in real time.
In most cases, banks collect payment procedures during the day and process them in one huge batch in the middle of the night.
That’s because behind the scenes, the banks still maintain their internal ledgers on a creaky mainframe with COBOL. This is an old enough programming language to collect Social Security.
A 2017 Reuters survey estimated that 43% of the global banking system is running on COBOL.
At the time, the industry was estimated to operate on a 2200 billion line of COBOL. The bank has since continued to pile it up, digging deeper into the holes in the legacy cord.
There are not many fears.
One bank regulator said banks “feel like hostages” at COBOL-based call-based systems.
“Some of these systems have not been turned off for decades,” according to a software executive who calls Banks’ COBOL systems “zombie code.”
“If there’s a shortage of electricity, many banks won’t know how to get their core systems back together.”
This risk is not theoretical.
For example, when the UK Bank TSB moved to the latest Java-based platform in 2017 with the COBOL system turned off, the new system was unable to turn it on correctly.
This left as many as 1.9 million customers without access to their accounts, including tens of thousands of business customers who were unable to pay their employees.
The confusion continued in the best part of the year, with banks spending over £400 million on customer compensation, consulting fees, operational losses, fraud and regulatory fines.
The TSB Chief Investment Officer was personally fined £81,000.
Since then, there have not been many banks risking COBOL replacements.
Recognizing that these legacy systems were virtually impossible, banks instead looked for ways to simply avoid them, so that only modest success could be achieved. Real-time payments made with Benmo and PayPal continue to be batched overnight by COBOL.
However, JPMorgan’s deposit coin, JPMD, hopes for better.
Announced last week, JPMD will allow whitelisted customers to move deposits held using JPMorgan on Coinbase’s base blockchain.
Of course, the entirely Kyc’d digital dollars in corporate blockchains are not going to make Cypherpunks dream come true.
But it’s definitely useful.
In fact, banks will be able to move money with hundreds of lines of smart contract codes instead of 100,000 COBOL codes.
Similarly, Jesse Pollak told Unchained Podcast that Coinbase helped Shopify do the same job that previously required “millions of off-chain systems code” using smart contracts.
This allows Shopify to “more efficiently, cheaper, completely, completely globally move money,” he says.
That’s how crypto and blockchain will “make the world economy 100 times better” as Pollak says.
I don’t blame you for being skeptical.
Most of the rethinking of blockchain-based finance I wrote here is a dream of cryptographic native fever that almost impresses reality.
However, Tradfi appears to be paying attention this time. The shares in Visa and MasterCard fell into fear last week that Stablecoins would really disrupt payments.
Even better evidence that something’s different this time may be the news today that Fintech giant Fizeb is planning to issue its own Stablecoin and launch a Solana-based payment platform for small banks to use it.
I think this is beneficial as Fiserv is one of three major fintech companies that provide “middleware” that connects Banks’ batch processing COBOL systems to real-time payment systems such as FedNow.