The Banking Industry is Embracing the Ethereum Blockchain
It was only a couple of years ago when banks wanted nothing to do with virtual currencies.
They refused to acknowledge or understand them. In their minds, accepting virtual currencies would have been too risky for the market due to various reasons. At the time, regulations weren’t set in stone, leaving many doors open for money laundering schemes. The unpredictable volatility of Bitcoin’s price left the impression that it was just a fad. But what they feared the most was how to define this new payment system. Was virtual currency actually money or just a commodity?
What these institutions did not realize is that the two elements of Bitcoin, virtual currency and the blockchain technology that powers it, (distributed ledger), were two separate entities. It’s understandable why they would confuse these two concepts and morph them into one. Sine then, the banking industry has become a lot more informed on the blockchain technology itself. By implementing it, banks realized they could process transactions faster and cheaper while also securing all the data included.
UBS and Barclays were the first to welcome Ethereum. Just a few days after the decentralized platform launched in July 2015, the two financial institutions announced they will be experimenting with its blockchain features.
It took some time, but the rest soon followed. This month alone saw three major global banks begin to test private blockchains using Ethereum.
The Royal Bank of Scotland (RBS) announced Emerald, a private blockchain to produce faster and transparent domestic payments. One of the reasons for choosing Ethereum was the platform’s key feature, smart contracts. These electronic, tamper-proof agreements are time-stamped on the blockchain, therefore they prevent any disputes. RBS explained Ethereum’s smart contracts were the best on the public domain.
RBS stated in Emerald’s technical paper:
“The developers liked the idea of the freedom of a smart contract platform, where the smart contract defines the functionality, over a specific product which is well suited to this application but has less inbuilt flexibility.”
Just this week, Bank of America Merrill Lynch (BAML) and JPMorgan revealed projects that were built using the platform. BAML partnered with Microsoft to develop safer and cheaper transactions. The bank will use Microsoft’s cloud computing platform, Azure Blockchain-as-a-Service, to change the financial trading system. This project will not only minimize any third-party risk but also reduce the time of the transactions; which is usually time-consuming and costly.
J.P. Morgan released a small presentation confirming they will be using the Ethereum platform to develop Quorum. By getting a little help from EthLab, whose co-founder, Jeffrey Wilcke, is also one of the founders of Ethereum, J.P. Morgan will create private blockchains that handle faster transactions in order to encrypt and protect data.
Perhaps the biggest headline involving Ethereum and the financial market came at the end of last year. R3, a blockchain company based in New York. They were able to organize a consortium of over 50 financial institutions to collaborate on designing and applying blockchain technology to the global markets.
Since Ethereum’s launch, it has held two major conferences to allow developers to present future applications built on the platform. This year’s conference, Devcon2, received multiple sponsors including a gold sponsorship from Santander. Building on that announcement, the bank partnered with the Ethereum Blockchain Explorer, Ether.Camp, to create CashETH. The CashETH concept allows Santander account holders to easily transfer their fiat currency into tokens on the Ethereum blockchain.
The most compelling development was in January 2016. R3, along with 11 banks, conducted their first distributed ledger experiment using Ethereum and Microsoft Azure’s Blockchain-as-a-Service. R3 connected with banks such as Barclays, HSBC, Royal Bank of Scotland, and UBS. Since then, R3 has tested five more blockchains with over 40 different banks.
The support towards Ethereum and blockchain technology is intended to grow rapidly over the next few years. IBM administered two different studies involving 200 banks and 200 financial markets. The studied revealed 15 percent of banks and 14 percent of financial markets will have a blockchain solution by next year. That adoption will increase as 65 percent of banks claimed they will have a blockchain project in production within the next three years.