Banks and the blockchain just got closer

Last week a consortium of 11 banks trialled a blockchain experiment: they sent tokens to each other on a distributed ledger. You’re probably thinking that this sounds simple. You’d be wrong. It’s taken months of work to build the underlying structure and to test the security. And it seems like it’s finally paying off.

by Phillipp Henzler for Unsplash
by Phillipp Henzler for Unsplash

The work has been done by the group led by blockchain developer R3CEV, which in mid-2015 started to “recruit” banks to help it develop blockchain standards for banking applications. The philosophy is that bankers know best what bankers want, so why not involve them in the development process from the beginning, in exchange for the right to use the result? It makes sense, right?

The level of interest even surprised the company itself. From a base of 9 banks signing on in mid-September, it rapidly grew to 42 banks by the end of 2015, when it closed the window of admission. Among the participating banks are big global names such as Barclays, UBS, Bank of America, Banco Santander, Goldman Sachs, Citibank, Deutsche Bank, HSBC, Société Générale and Morgan Stanley, to name just a few.

A few days ago 11 of the members simulated the exchange of value on a ledger without a centralized authority, by sending tokens back and forth. The tokens represented theoretical assets, and the experiment aimed to show that the transfer of securities could be done instantly, securely and at low cost. All of the transferred tokens arrived at their test destinations intact and instantly verified by all nodes. The experiment worked.

Additional simulations with additional members will take place over the next few months, and the process will be adjusted to include different types of assets and settlement methods. This trial used Ethereum as a blockchain base, but R3CEV has specified that it is also experimenting with other ledger technology. The company is not revealing details about further experimentation, but has indicated that their attention in 2016 will widen to include non-banking institutions. Does that mean government organisations? ONGs? Transnational support?

We’ll no doubt hear more about this over the coming months, and it serves as further indication that 2016 will see the roll-out of important and far-reaching use cases for ledgers, the blockchain and for bitcoin.

from xkcd
from xkcd

Getting so many big names in banking to collaborate on a transfer structure that harnesses the technological advantages of the blockchain without depending on bitcoin (which would technically make it not the blockchain but a blockchain-inspired ledger) is exciting and encouraging. It’s a big step towards making the legacy banking and trading systems more efficient and transparent. However, banks being fairly cautious animals by nature, many are also experimenting with the blockchain on their own account, either with in-house teams, or in collaboration with other blockchain developers such as Digital Assets Holdings, Chain, Symbiont and Ripple. Confusing? Sure. But the interest is there, work is being done, and it’s not a winner-take-all situation.

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