Why are big bank advisors concerned about Ethereum hard forks?

The recent Ethereum hard fork has had an impact far beyond message boards and forums, and has even taught a lesson to companies actively involved in building private blockchains.

Representatives from major consulting firms are reporting that they have received questions from corporate clients regarding Ethereum’s decision to hard fork its blockchain. Companies as diverse as Capgemini, Deloitte, and EY revealed that their blockchain experts have been watching the matter closely in an effort to better understand the rapidly evolving open source blockchain space.

Iliana Oris Valiente, Deloitte’s chief blockchain strategist, said in an interview today:

“This is also a blockchain development project we have been following closely.”

She said she believed this situation could not be replicated in a private blockchain environment (given the incentive structures and design features at play), but she thought it was something the wider community could learn from.

Valiente told CoinDesk:

“Of course our users are asking, especially for existing use cases, ‘How will the DAO affect our ongoing projects?’ ‘Will the DAO incident reduce public confidence in Ethereum?’”

However, users are more curious than concerned, said Angus Champion de Crespigny, blockchain leader at EY.

He reported on the overwhelming criticism of public blockchains by users, but said that well-known public blockchain projects are the basis for blockchain experiments.

He said:

“Most of the attention people pay to the public blockchain sector comes from interest, not fear.”

Overall, everyone agreed that the failure of The DAO and the subsequent hard fork to rescue investors’ funds can be seen as a warning: the blockchain ecosystem is still in its early stages of development. In this new environment, how can regulatory oversight and consumer protection issues be addressed?

Champion de Crespigny likened this to a “changing teeth phase” in the industry, and also suggested that innovators were pushing blockchain technology too fast.

Champion de Crespigny said:

“When the original social media networks came out in 1995, blockchain didn’t exist, all the social media and mobile phone-related broadband didn’t exist. It’s like when you’re building a building, you need scaffolding.”

“I think it’s just tempered enthusiasm.”

Research needed

Another popular view is that the incident also illustrates why the entire blockchain ecosystem needs more research.

For example, Capgemini blockchain community lead Bart Cant said the situation shows that there needs to be more “tools and capabilities” to deal with such catastrophic events.

Cant said:

“Disaster recovery plans and processes are critical in financial services industry solutions, and from the DAO attack and subsequent fallout, it was clear that very little prior testing had been done on Ethereum.”

Champion de Crespigny said the incident should serve as a "wake-up call" for industry innovators, raising questions about how blockchain technology should be used and how solutions can be built on these platforms.

As an example, he cited how Bitcoin proved seven years ago that blockchains could be used to execute transactions. Despite interest from institutions, more complex contracts have not been developed, he said.

He said:

"It raises the question, 'Are we making things more complicated for the industry?'"

Gideon Greenspan, CEO of Coin Sciences, a startup that consults with enterprise users on projects and proofs of concept, also expressed a desire to work on smaller blockchain projects.

Greenspan said:

“From our perspective, we have always believed in avoiding the use of smart contracts in blockchain unless there is a specific use case that requires them.”

Safety and exploration

However, all respondents agreed that their companies are continually working to understand the blockchain industry and that hard fork scenarios could provide valuable data that could improve the community’s understanding of blockchain.

Valiente said:

“I think this incident can make us reflect on the security of blockchain projects and learn lessons from it to improve them.”

Champion de Crespigny believes that this incident has sounded a wake-up call for investors, especially when participating in speculative investment activities in the public chain system, they must pay attention to its two-sided nature.

He continued:

“I think DAO is a project full of risks. It’s either a huge gain or a loss.”

However, he said that if more industries want to develop the full potential of blockchain, this ambitious project, or ambitious failure, is inevitable.

He concluded:

"I think these experiments are necessary and people need to keep exploring."