At the core of both technologies is the cryptographically secure digital ledger known as the blockchain. It’s a digital ledger where cryptocurrency transactions are recorded chronologically and publicly. Indeed, as the popularity of cryptocurrencies has grown, so has the banking industry’s interest in blockchain for fintech, with an increased and focused push on bank-backed blockchain projects.
Some of the largest projects underway include the IBM-backed Hyperledger Fabric project, the Utility Settlement Coin, and R3’s blockchain consortium, signifying a growing acceptance in institutional policy to support blockchain growth
How does it work?
Currently, banks transact with each other by creating agreements, as one would when purchasing an item from a store. A common example would be a bank agreeing to purchase a specific amount of stock for a specific cash price from another. This process, often cumbersome and slow, takes up to several days and incurs the risk that one party may default or renege on the agreement. This period of time, known as settlement, is such an issue that an Oliver Wyman report identified it as costing the financial industry anywhere from $65-$80 billion a year.
Blockchain projects have the potential to reduce, and possibly eliminate, settlement times due to their digital nature, ensuring the timely and secure processing of these operations. Other uses for bank-backed blockchain projects would include secured global currency exchange rate speeds and increased transaction security, among other benefits, eventually allowing for an overhaul of the banking industry, replacing traditional back-office clearinghouses and other outdated mediums that exist between asset sellers and buyers.
IBM’s Hyperledger Fabric
The IBM-backed Hyperledger Fabric project is a trade finance platform aimed at international payments utilizing blockchain, with seven of its largest supporters including Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Societe Generale and Unicredit. IBM’s blockchain platform will run through the IBM Cloud, allowing for interconnectivity between all parties in a particular secure transaction.
This project is designed to be highly scalable, allowing for multiple entrants to easily integrate into the entire financial supply chain process through the secure blockchain, allowing for an unprecedented amount of transaction transparency. In mid-October, IBM revealed a partnership with blockchain startup Stellar, spreading the influence of the Hyperledger Fabric project to global levels unseen before…