Eleven of the world’s largest banks, including Barclays, UBS and HSBC, have revealed that they are working on a blockchain -based trading system.
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Banks working on new blockchain instantaneous transfer system
New York-based software company R3 brought together a consortium of 42 major lenders to work on introducing blockchain technology in financial markets. The 11 banks are part of that group, and their work marks the first occasion on which so many lenders have worked together on these systems.
A blockchain refers to a decentralized ledger of every bitcoin transaction, which is verified and shared over a network that spans the globe. It can also be used to secure and validate the exchange of any type of data including real assets like commodities and currencies.
Banks hope to save money using the technology, which cuts out middlemen and would make transactions more transparent. Despite cautious optimism some analysts warn that it is early days for a technology that was invented just 6 years ago.
Exciting technology needs further testing
During testing banks operating across four continents were able to settle transactions almost instantly. Transactions for some asset classes can take days or even weeks using the current systems.
Charley Cooper, Managing Director at R3, said that banks could transfer real assets using the technology within two years.
“Rather than just talking about what we might do, we’ve moved into a new phase, which is actually executing these plans and demonstrating how this technology might work in practice,” said Tim Grant, who runs R3’s test labs.
“Proving the scale and peer-to-peer operation of blockchain experiments is an important next step,” said UBS’s senior innovation manager Alex Batlin, who runs the bank’s blockchain lab in London.
On the team at R3 are many big names from the areas of bitcoin and technology as a whole. Lead platform engineer Mike Hearn is a former lead bitcoin developer, and refers to the crypto-currency as a failed experiment.
For banks the main attraction of blockchain technology are the “smart contracts” it facilitates. These are agreements that are automatically executed when a set of pre-determined conditions are met.
“Though … there are still many implementation hurdles left to overcome, this exercise further validates the utility of smart contract consensus technology,” a spokesman for distributed ledger company Ethereum said.