Bitcoin's Blockchain Technology Tested by 40 Banks

In a major boost to blockchain technology, R3 CEV, a fintech innovation company--along with 40 banks--successfully trialed five distinct blockchain technologies in parallel, using multiple cloud technology providers in a first-of-its-kind test. The move shows just how much major financial and tech institutions have high hopes for blockchain, the technology that powers bitcoin. (See Bitcoin Vs. Big Finance.)

A blockchain is a public ledger of all transactions that have ever been executed. It is constantly growing as "completed" blocks are added to it with a new set of recordings. The blocks are added to the blockchain in a linear, chronological order through cryptography, ensuring that they remain meddle-proof. The blockchain thus stands as a tamper-proof record of all transactions on the network, distributed to all participants.

Although the technology has many potential uses outside the financial system, banks have been among the first to look at the benefits of the cost advantages and efficiency that this technology offers them. According to Santander InnoVentures, “Distributed ledger technology could reduce banks’ infrastructure costs attributable to cross-border payments, securities trading and regulatory compliance by between $15 – 20 billion per annum by 2022.” The potential benefit this innovative technology offers has led banks to “openly and secretly” work to explore the technology. (See also: Blockchain: The Backbone of Finance's Entire Future.)

During the recent experiment, trials were conducted to run smart contracts on the R3 managed privately distributed ledger built by Chain, Eris Industries, Ethereum​, International Business Machines Corp. (IBM) and Intel Corp. (INTC), which connected the participating banks. These smart contracts were programmed to facilitate issuance, secondary trading and redemption of commercial paper, a short-term fixed income security typically issued by corporations to raise funding, according to the press release by R3 CEV. The experiment included five distributed ledgers which ran a logically identical smart contract to enable banks to compare performances between them. These distributed ledgers were supported by cloud computing resources of Microsoft Azure, IBM Cloud and Amazon AWS.

Financial innovation firm R3 CEV began partnering with leading banks worldwide in Sep. 2015 to “design and apply distributed ledger technologies to global financial markets.” R3CEV was initially joined by nine banks, a number which is now at 40; Banco Santander, Bank of America, Barclays, BBVA, BMO Financial Group, BNP Paribas, BNY Mellon, CIBC, Commonwealth Bank of Australia, Citi, Commerzbank, Credit Suisse, Danske Bank, Deutsche Bank, Goldman Sachs, HSBC, ING Bank, Intesa Sanpaolo, J.P. Morgan, Macquarie Bank, Mitsubishi UFJ Financial Group, Mizuho Financial Group, Morgan Stanley, National Australia Bank, Natixis, Nordea, Northern Trust, OP Financial Group, Royal Bank of Canada, Royal Bank of Scotland, Scotiabank, SEB, Societe Generale, State Street, TD Bank Group, UBS, UniCredit, U.S. Bank, Wells Fargo and Westpac Banking Corporation are the names on the list. (See also: Blockchain Technology to Revolutionize Traditional Banking.)

According to David Rutter, CEO of R3, “This development further supports R3's belief that close collaboration among global financial institutions and technology providers will create significant momentum behind the adoption of distributed ledger solutions across the industry. These technologies represent a new frontier of innovation and will dramatically improve the way the financial services industry operates, in much the same way as the advent of electronic trading decades ago delivered huge advancements in efficiency, transparency, scalability and security.”

The distributed ledger technology or simply blockchain provides cost-saving advantage, swift transactions, tamper-proofing of records, absence of a middle party and much more. For these reasons, the blockchain technology is attracting not only financial institutions but many others in the world of music, diamonds, traders and stock exchanges, insurance, voting and even healthcare.