Bitcoin roundup: Banks’ blockchain ledger development gathers pace
By Gary McFarlane, March 3, 2016
It looks like this could be the year that blockchain-based services finally emerge from the research labs of the major financial services companies.
The blockchain is the distributed public ledger system used by bitcoin to verify transactions, but it can be adapted for non-bitcoin uses.
From JPMorgan to Goldman Sachs, the big beasts of the financial industry, are determined not to be left behind by the innovations.
Banks, credit card companies and other financial institutions have all been feverishly developing their own blockchain solutions to deliver more efficient and cheaper ways of transacting business.
News that UK fund management firms are collaborating on a blockchain implementation is a further sign of the growing enthusiasm for this area of financial technology (fintech).
Furthermore, it has emerged that the Chinese central bank wants to launch its own digital currency; so too does Japanese banking giant Bank of Tokyo-Mitsubishi.
FUND MANAGERS TEAM UP
Schroders, Aberdeen Asset Management, Henderson Global Investors, Aviva Investors and Columbia Threadneedle Investments, which manage a total of around £1 trillion of assets between them, are working together on blockchain solutions.
Although at an early stage, the fund managers are looking at developing several applications.
Fund management companies are arguably behind the curve in comparison to the banking industry, where, for example, the R3 consortium — which brings together banks and financial technology companies — provides a framework to experiment and develop industry-wide standards to enable the inter-operability of blockchain applications.
JPMORGAN AND GOLDMAN SACHS PLOUGH AHEAD
Underlining the acceleration in the competition to deploy an application, JPMorgan Chase has teamed up with Digital Asset Holdings to build blockchain solutions.
Uses being explored for the applications include handling liquidity mismatches on the bank’s loan funds.
JPMorgan is also involved in the Open Ledger Project of the Linux Foundation, which is developing industry-wide standards. Fintech start-up Digital Asset Holdings is run by chief executive Blythe Master, the former head of commodity broking at JPMorgan.
Not to be left out, US investment bank Goldman Sachs is probably ahead of the pack in its blockchain work — it leads a consortium building a cloud-based communication system for ‘instant communication and content sharing that connects market participants securely’, which has been in pre-release testing since April last year.
UK CHIEF SCIENTIFIC OFFICER LOVES BLOCKCHAIN TOO
Sir Mark Walport, the government’s chief scientific officer, is also warming to the potential of the blockchain, and would like to see it deployed to improve tax collection and even to manage the provision of public services such as the NHS.
Walport authored a government report published in January, in which he says the blockchain ‘has the potential to redefine the relationship between government and the citizen in terms of data-sharing, transparency and trust’.
Beyond collecting taxes, the report envisages blockchain technology being used to ‘issue passports, record land registries, assure the supply chain of goods and generally ensure the integrity of government records and services’.
PBOC PLANS DIGITAL CURRENCIES LAUNCH
The People’s Bank of China (PBOC) is investigating launching its own digital currencies. China’s central bank thinks a digital currency could bypass the costs associated with the circulation of paper money.
Interestingly, given the libertarian roots of early bitcoin enthusiasts, the central bank also sees digital currencies as a way to exert greater control over the money supply.
A research team was established by the PBOC in 2014, but the existence of the group has only recently been revealed.
In a statement published on its website at the end of January, the PBOC said: ‘The team… should set up a clearer strategic target for launching digital currencies, overcome the key technological barriers… and aim for an early launch of the central bank’s digital currencies.’
ECB LOOKS INTO BLOCKCHAIN USE FOR EUROSYSTEM
Although the European Central Bank is on record as describing digital currencies as ‘inherently unstable’, in February it announced in a consultative report that it was investigating using the blockchain for payment and settlements in the Eurosystem that handles services for private banks and the eurozone’s national central banks of member states.
The report states: ‘As part of its vision, the Eurosystem intends to assess [digital currencies’] relevance for the different services it provides to the banking communities (payment, securities settlement as well as collateral).
This investigation will identify opportunities that these new technologies may provide, as well as challenges that they create.’
JAPAN TO PUT BITCOIN ON EQUAL FOOTING
Japan’s financial regulator, the Financial Services Agency (FSA), is considering placing bitcoin and other virtual currencies on the same footing as real money, in a bid to provide consumers with greater protection, according to financial website Nikkei Asian Review.
The move comes against the background of the fallout from the collapse of the Mt.Gox bitcoin exchange in 2014, which at the time of its closure was the largest exchange of its kind anywhere in the world and left its customers out of pocket to the tune of $273 million, or £193 million (at the current bitcoin price of $422).
The FSA will recognise bitcoin as a currency as understood by the normal sense of the word, namely that it is a means of exchange and store of value. Institutions providing bitcoin services would be required to register with the regulator.
JAPANESE BANK CREATING OWN DIGITAL CURRENCY
Meanwhile, Japan’s largest bank, Bank of Tokyo-Mitsubishi UFJ (MUFG) is creating a digital currency.
Driven by the desire to reduce the cost of financial transactions, the currency is envisaged as being for internal use in the first instance but could be rolled out to the bank’s customers at a future date.
A report seen by the Japanese newspaper Asahi Shimbun says that the currency, known as MUFG coin, ‘takes advantage of the new technology that is on a network of multiple smaller computers.
It is possible to cheaply build a tamper-resistant transaction record of the ledge, otherwise referred to as the “blockchain”’.
MUFG is part of the R3 consortium of financial institutions and fintech companies collaborating to develop inter-operable private blockchain solutions.
ACCENTURE SMARTPLUG TO CUT ELECTRICITY BILLS
Management consultancy Accenture has developed a ‘smartplug’ that uses blockchain technology to shop around for cheaper tariffs and will automatically sign a contract when it finds a suitable one.
Accenture’s implementation of the blockchain is able to actively negotiate contracts on behalf of its owner.
Emmanuel Viale, who heads up the company’s research team based in France, said of the project: ‘It’s about how we put more business behaviour or logic into the blockchain’ by embedding a ‘smart contract’ into the public ledger.
Although at this stage only a proof of concept, the plug if it went into production could save money on electricity bills for utility company customers who are not on a quarterly contract, the consultancy claims.
US HOSPITAL PAYS BITCOIN RANSOM TO HACKERS
A hospital in California has paid a ransom of $17,000 in bitcoin to hackers who compromised its computer systems.
Allen Stefanek, the president of Hollywood Presbyterian Medical Center, said paying the ransom was the ‘quickest and most efficient way’ of regaining control of its systems.
The hospital said that no patient or employee records were affected by the cyber attack. However, the attackers were able to encrypt communications between doctors and other hospital staff with a key that only the hackers had access to.
The source of the attack remains unknown but FBI investigations are ongoing.
Originally published at www.moneyobserver.com.
