What Goldman Sachs’ CEO misunderstands about private blockchains

Only one of the following news items is real, but someday, all will sound equally comical.

Headline, 1896:

The owner of Wagoneer & Sons, a leading horse-drawn carriage maker, has announced the adoption of a new machine called the “internal combustion engine” to improve its manufacturing process. “Gas engines are powerful but dangerous,” the owner said. “We will use them to make better wagons.

Headline, 1918:

The American Association of Candle Makers has announced a new initiative to electrify its wax-making process. It believes that electricity is too dangerous to use for lighting but can be utilized to make cheaper candles.

Headline, 1989:

The United States postal service will adopt a new technology called “the internet” to speed up the sorting and delivery of letters and postcards.

Headline, 2022:

The CEO of a major investment bank argues that blockchain, a technology invented to eliminate legacy intermediaries such as banks, is best used by those intermediaries to incrementally improve their outdated methods.

That final headline is a summary of an op-ed authored by Goldman Sachs CEO David Solomon, who argues that private blockchains deployed by regulated intermediaries are more useful than cryptocurrencies. This is the latest iteration of the “blockchain, not Bitcoin” argument we’ve heard for years. It usually starts with a list of why things like public blockchains or decentralized finance (DeFi) are dangerous and ends with the conclusion that only incumbents should be allowed to use the technology. But that’s not how history works.

Every transformative technology starts out as “inefficient and dangerous.” The earliest automobiles often broke down, and one of the first major uses of electricity was executing prisoners. The people and companies who initially embrace new tech also tend to be suspect. Most car companies that popped up 100 years ago failed, and Thomas Edison used to electrocute animals to make his competitors look bad. But good tech that solves important problems wins anyway.

To be fair, there was a time when I considered private blockchains to be a useful, though insignificant, solution — not as a substitute to crypto but as a temporary solution that could evolve in parallel. A bank, I would have told you three years ago, could use a private network to reduce internal inefficiencies today while learning how to interact with public ones tomorrow.

But I was wrong. Despite a massive effort, the only thing private chains…