The first great blockchain banking consortium includes 9 of the world's largest investment banks, jointly experimenting with a shared blockchain to see if it will work for the entire Multi-Trillion dollar financial services sector.
This summer has been a nonstop thrill ride of bank after bank making announcements that they are embracing blockchain technology in some way, with some of them try using the Bitcoin blockchain to secure their enormous digital assets.
Normally these are announcements are made one bank at a time and now a consortium of banks have decided to pool their efforts together, with nine major banks announcing the formation of a partnership.
Coordinated by Wall Street-based R3 CEV, the banking partnership currently comprises Barclays, BBVA, the Commonwealth Bank of Australia, Credit Suisse, J.P. Morgan, State Street, the Royal Bank of Scotland and UBS.
R3’s CEO David Rutter is leading the project, and says that more banks are expected to pledge their support in the coming weeks. As a former ICAP Electronic Broking CEO, Rutter presided over two of the largest electronic Over The Counter (OTC) platforms in the world.
The firm has offices in New York, London, and San Francisco, and is made up of financial industry veterans, technologists, and tech entrepreneurs. They also claim expertise in electronic financial markets, cryptography, and digital currencies.
Nonetheless, creating a shared single blockchain will be the most valuable asset. “This partnership signals a significant commitment by the banks to collaboratively evaluate and apply this emerging technology to the global financial system," Rutter said.
“Our bank partners recognize the promise of distributed ledger technologies and their potential to transform financial market technology platforms where standards must be secure, scalable and adaptable.”
— – David Rutter, R3 CEO
“Our bank partners recognize the promise of distributed ledger technologies and their potential to transform financial market technology platforms where standards must be secure, scalable and adaptable.”The stated goals of the group are to collaborate on research, design, and engineering to help advance “state-of-the-art enterprise-scale shared ledger solutions,” in order to meet banking requirements for security, reliability, performance, scalability, and auditing.
To accomplish this, R3 says its partners will establish a collaborative joint working group, and the consortium will work within a shared lab environment or ‘sandbox,’ in order to “test and validate distributed ledger prototypes and protocols.”
"The collaborative model we’ve established with R3 and the other banks is a very effective way to deliver robust shared ledger solutions to the financial services sector," said Kevin Hanley, Director of Design at Royal Bank of Scotland.
— – Kevin Hanley, Royal Bank of Scotland Director of Design
"Right now you’re seeing significant money and time being spent on exploration of these technologies in a fractured way that lacks the strategic, coordinated vision so critical to timely success. The R3 model is changing the game."Developing commercial applications while establishing consistent standards and protocols are key facets of the collaboration. If they can establish the protocols first, it could facilitate broader adoption of their blockchain model across the greater financial market, and even gain a network effect for their own consortium.
As most bitcoiners have learned through watching the adoption of their favorite currency, when introducing a new protocol the Network Effect often decides which competitor will come out ahead.
Last week, San Francisco-based startup Chain Inc, a blockchain technology firm working closely with NASDAQ, received another round of funding. The company now has over US$43m in its war chest, and several large banks on their list of investors. Noticeably absent from R3’s client roster are all of the financial institutions listed as investors in Chain, including Visa, Nasdaq, Citi Ventures, CapitalOne, and Fiserv.
— – Adam Ludwin, Chain CEO
"Applied intelligently, blockchain networks fundamentally improve how assets move between parties, and we are thrilled to be partnering with the organizations we believe are best positioned to capitalize on the inevitable changes in market structure that are on the horizon."Chain provides similar blockchain technology services to those proposed by R3, and it is not outside the realm of possibility that Chain and R3 will find themselves in a contest sooner or later. If two bank networks find themselves racing for such a prize, the Network Effect states that the one getting the earliest start has the best chance of winning.
"These new technologies could transform how financial transactions are recorded, reconciled and reported – all with additional security, lower error rates and significant cost reductions," said Hu Liang, Senior Vice President and head of Emerging Technologies at State Street. "R3 has the people and approach to drive this effort and increase the likelihood of successfully advancing the new technology in the financial industry."
A more specific goal of the group is to create a shared ledger that can “safely and securely store and share data in a consistent, effective ledger outside the firm’s firewalls where it can be analyzed and matched against other counterparties.” Although they haven’t mentioned if their eventual goal would be a permissionless ledger, like Bitcoin’s blockchain, it is reasonable to assume that their planned network won’t be.
