29 Jun 2021
5 min read
Since the blockchain first appeared, industries have realized its potential to transform services. One, in particular, is the banking or fintech sector, which is paying close attention to its development. But which major banks have adopted or are thinking about adopting Blockchain technology?
Around the world, financial establishments have been conducting tests with the distributed ledger, undertaking proofs of concepts and publishing their results. Blockchain consortiums such as R3 and the Hyperledger Project are also seeing a growing number of banks joining them so that they can work better together, both of which have over 100 different members. Ripple’s blockchain-based platform is another avenue that sees an increasing number of banks joining its global network as well. Last month, Ripple announced that over 100 financial establishments had joined its RippleNet network to modernize global payments.
The areas ripe for blockchain intervention include:
Let’s look at blockchain platforms like Ripple, Stellar, or Algorand who can process transactions in a few seconds at the cost of fewer than 0.01 Euros. So it makes sense that the fintech industry is looking at blockchain technology. Adopting blockchain technology can be key for these organizations to become market leaders and innovators.
So which major banks have adopted or are starting to adopt blockchain technology?
As one of the leading U.S. investment banking institutions, Goldman Sachs set up an educational microsite explaining the benefits of blockchain technology. One of the key features of the comprehensive site is the technology’s security: it provides a simple, secure way to establish trust for virtually any kind of transaction, helping simplify the movement of money, products, or sensitive information worldwide.
Goldman Sachs believes companies don’t need to develop proprietary software using blockchain technology to innovate financial markets. Transparency is a key feature and is also one of the cornerstones of blockchain technology. Therefore, there’s no need to design proprietary software.
For that reason, adoption needs to happen on a larger, global scale to reap its benefits. However, blockchain technology is a new technology with no standardized implementation. Lawmakers will need time to resolve questions about liability and other legal issues. For instance, who’s liable for losing money due to a fault in a blockchain protocol? What happens when a hacker steals blockchain-based digital assets due to a fault in an application? Lawmakers need to design a solid framework to reach full adoption of blockchain technology.
Goldman Sachs is one of the leading investors behind the strong stablecoin USDC by startup Circle. A stablecoin is a digital asset pegged against the U.S. Dollar. This means that the USDC token is always worth precisely one U.S. Dollar. Therefore, it’s a cryptocurrency which is not subject to volatility unlike many other cryptocurrencies like Ethereum or Bitcoin. In that perspective, it’s an excellent investment by Goldman Sachs as it allows them to safely move large sums of money globally without having to worry about crypto’s volatility.
J.P. Morgan has been an active player in the blockchain ecosystem, regularly talking with the media about Bitcoin and other relevant blockchain projects. On April 12, 2021, the bank stated that they use blockchain technology to help improve money transfers.
Their blockchain solution allows them to reduce the payment processing and verification time for large payments.
“By leveraging Confirm – a global account information validation application on the blockchain by J.P.MorganSM — partner banking institutions, including Taiwan banks, will be able to request confirmation of the beneficiary account information and receive responses directly from other participating banks receiving the requests in near real-time. Once the information is validated, the payment may be sent through J.P. Morgan’s global clearing solution.”
Liink is a blockchain application using Onyx’s blockchain platform to enable financial institutions and corporate users to make secure peer-to-peer data transfers with greater speed and control. The most significant benefit of using Liink is integrating the tool into any platform through the exposed API. It’s an excellent starting point to innovate how institutions communicate and share valuable data.
At the moment, 382 banks are using J.P. Morgan’s Liink platform to exchange data.
The Swedish central bank is experimenting with releasing its own digital currency called the e-krona. The project uses the Corda distributed ledger technology solution developed by R3. They are now moving ahead with their experimentation phase by including Riksbank and Handelsbanken.
“For Handelsbanken, the project means the opportunity to participate in what may be among the first digital central bank-issued money in the world to be available to the public.”
However, they are not the first central bank that wants to issue a digital currency. Multiple countries have expressed their interest and the importance of a central bank-created digital currency. China has primarily led this ambition. Early this week, they handed out $6.2 million in digital currency to Beijing residents as part of a trial. 200,000 residents have received 200 digital Yuan, China’s currency.
HSBC also uses R3’s blockchain platform to enable its Digital Vault, a custody blockchain platform. HSBC has identified the opportunities in blockchain technology to safely store digital assets. On top of that, with the help of blockchain technology, they could reduce the costs of their custody service.
Corda’s blockchain technology gives HSBC the opportunity to move more of the transaction lifecycle onto the ledger in the future. “The bank will also be able to issue digital tokens instead of paper certificates. R3’s Corda platform enables businesses to transact directly and privately using smart contracts, reducing transaction and record-keeping costs and streamlining business operations.”
“Launched in 2019, the Digital Vault service digitizes the transaction records of private placement assets including equity, debt, and real estate. This enables global custody clients to access details of their private assets directly and in real-time instead of having to request a search of paper-based records.” In this example, blockchain technology allows anyone to quickly audit transaction records.
It’s undeniable blockchain has the potential to innovate many aspects of traditional banking. We see innovations in different areas, such as reducing transaction costs, faster transaction clearing, and improved data verification processes.
On the other hand, we need a better legal framework to allow these banks to operate blockchain technology. In addition, lawmakers need to figure out responsibilities in regards to using blockchain technology and decentralization.
Just as Goldman Sachs explains, we need a better legal framework combined with global adoption to reap the benefits of blockchain technology. It’s not sufficient if only a few banks use blockchain technology while still implementing slower processes for banks outside this consortium. In other words, all links in the traditional banking industry need to use blockchain technology to reach the next level of banking innovation.
A good example is J.P. Morgan’s Liink platform to exchange data faster. 382 banks and counting have adopted the platform. But again, we need global adoption to reap the full benefits of blockchain technology in the banking industry.
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