A year ago, the blockchain was a mysterious technology that somehow powered the equally mysterious Bitcoin. But people in financial services learn quickly when there’s money on the line. Today, most of the world’s big banks and exchanges are either experimenting with the blockchain or investing in companies that work with it.
In January, 11 members of a 42-bank consortium organized by R3 CEV, a New York-based company founded by former ICAP executive David Rutter, conducted an experiment with the company's private distributed ledger network. The participating banks simulated an instantaneous exchange of value on a peer-to-peer basis, without the need for a centralized third party.
Banks involved in the test included such giants as Barclays, BMO Financial Group, Credit Suisse, Commonwealth Bank of Australia, HSBC, Natixis, Royal Bank of Scotland, TD Bank, UBS, UniCredit, and Wells Fargo. The test was conducted using the Ethereum blockchain platform and was hosted on Microsoft's Azure cloud computing service.
"Proving the scale and peer-to-peer operation of blockchain experiments is an important next step in this transformational initiative," commented Alex Batlin, UBS senior innovation manager. "Through connecting 11 bank labs into a simulated-real-world network, we're able to establish the platform we need to test our theories effectively in a safe environment."
Meanwhile, other institutions made blockchain-related transactions for actual cash last month. Australian markets operator ASX announced on Jan. 21 that it had paid AUD $14.9 million (USD $10.6 million) for a 5% share of Digital Asset Holdings, a blockchain company headed by former J.P. Morgan executive Blythe Masters. The investment includes the initial development costs of a private distributed ledger solution to replace ASX’s legacy post-trade clearing and settlement system.
“A retail investor in Australia should be able to sell their shares, go to the nearest automatic teller machine and get their cash out. We can now trade equities in 150 microseconds; then it takes two days to settle. That makes no sense,” said Elmer Funke Kupper, ASX managing director and CEO.
Rather than replace its nearly 20-year-old system with a new version based on the same legacy processes that operate in the market today, the exchange chose to take the opportunity to re-engineer and simplify those processes with blockchain technology, according to a release.
The new distributed ledger system will operate alongside the legacy system for 12 months. In 2017, ASX will decide which it will continue to support. The deal also gives ASX the option to purchase further equity from Digital Asset and appoint a director to the startup’s board.
