News that 13 additional banks have joined financial innovation firm R3’s distributed ledger initiative signifies the savings the banking sector believes blockchain technologies can deliver to the financial services sector.
Bank of America, BNY Mellon, Mitsubishi UFJ Financial Group, Citi, Commerzbank, Deutsche Bank, HSBC, Morgan Stanley, National Australia Bank, Royal Bank of Canada, SEB, Societe Generale and TD Bank Group now join Barclays, BBVA, Commonwealth Bank of Australia, Credit Suisse, Goldman Sachs, J.P. Morgan, Royal Bank of Scotland, State Street and UBS in collaborating with R3 to design and deliver advanced distributed/shared ledger technologies to global financial markets. R3 hopes to reduce compliance infrastructure costs and to establish standards and protocols for this emerging technology across the financial industry.
Little is known of the precise direction the collaboration will take or how closely it will mimic the blockchain used by cryptocurrency providers like Bitcoin.
Rather than the consensus process that characterizes a fully decentralized blockchain or transaction database, a partially decentralized one, controlled by a pre-selected set of nodes, could serve a banking consortium, with each bank operating a node, and an agreed number of them required for validation.
Nasir Zubairi, a venture partner at FinLeap, a Berlin-based fintech financier, understands blockchain’s value for banks but believes it will be a tweaked form of blockchain. “While the mining incentive for Bitcoin is what keeps the blockchain working, the value for banks is they will get lower fees for transaction settlements—so they have an incentive for building it.”
Nick Tomaino, business development manager at Bitcoin company Coinbase, sees the bottom line as the chief motivation for banks, but stops short of calling it blockchain: “The blockchain that will have the most impact on the world will be the one that is accessible and not controlled by anyone,” he says. “A shared database could be useful in improving efficiencies within banks and making some banks more profits, but the Bitcoin blockchain has a chance to dramatically improve the lives of billions of people around the world.”