Over the last few years, the finance industry disruption and growth of using the blockchain in finance has been nothing short of breathtaking.
In a narrative that by now seems to come part-and-parcel with emergent technologies, blockchain start-ups tend to be framed as combatants against the various companies that make up the traditional financial market.
In some cases, this narrative rings true: the blockchain is radically disruptive, and the use case for Bitcoin, in particular, is well-demonstrated enough that those in the traditional finance sector have reason to fear it.
After all, it’s decentralised, and in an era characterised by massive tech and wealth centralisation, this is the most frightening thing these companies could encounter.
But not everyone is viewing the emergence of blockchain as a battlefield of old versus new.
A number of finance companies are doing what successful companies have always done: adapting to change, taking on this exciting new technology and using it to enhance the systems they already have in place.
What we’re seeing in the sector is major finance companies—particularly larger banks and exchange platforms—either forming consortiums or contracting big tech companies to develop blockchain solutions for them.
In this article, we’ll look at a combination of the most interesting finance and tech companies working together to upgrade old infrastructure and bring forth a more efficient, faster future via the blockchain.
Without further ado, let’s have a look at what these finance industry companies are doing.
IBM is always plugging away at new technology.
As a world-leader in project-specific software development, it makes perfect sense for them to be embracing the potential of the blockchain.
In a way, the sorts of projects IBM tends to take on across a massive number of sectors echo the kind of industry-specific speciality coin Initial Coin Offerings (ICOs) that were popping up left, right, and centre in late 2017.
However, with IBM being as big and as well-connected as it is, their ability to engage with and create specialised products for industry leaders is on a whole different level from small venture capital start-ups and their ICOs.
The key project I want to mention is IBM’s Hyperledger Fabric project.
This is a platform for trade finance, and it’s being supported by Deutsche Bank, Rabobank, and HSBC among others.
The Fabric code is underlying in various projects executed by these banks more and more and is now opensource for developers looking to build whatever they like.
This is pretty significant, and it lowers the barrier of entry for developers, which is probably why there were a bunch of financial institutions backing Fabric’s development: easier development means easier prototyping, which means lower-cost blockchain research and development.
AXA is a French insurance company that recently implemented blockchain technology as part of a new product called Fizzy.
This relatively-simple app-based product automatically and instantaneously pays out compensation to a user if their flight is more than two hours late.
The payout is triggered by a network that is constantly checking public flight records: the moment a plane is registered to be more than two hours late, the relevant Ethereum smart contracts are triggered, and the insured party is paid out their compensation (delayed only by old-school banking processes).
It’s a neat little application of blockchain technology that makes a bunch of sense, allowing consumers to sidestep bureaucracy and stressful airport phone calls.
Best of all: there are no disputes because the data doesn’t lie and the smart contract cannot fail.
As the internet of things comes to encompass more and more household objects and devices, apps like Fizzy will hopefully become commonplace, and smart-contract verified item-by-item insurance will become the norm.
That’s right, even Australia’s own stock exchange is getting onboard with the blockchain revolution.
In fact, they’re replacing their entire Clearing House Electronic Subregister System (CHESS) infrastructure with a distributed ledger. That's right. Their clearing and settlement technology is getting an overhaul.
This is pretty radical: it means the ownership records of every single traded Australian share will be stored in a blockchain after the ASX’s target blockchain infrastructure launch date of 2021.
This is a perfect example of how the blockchain is changing finance to be more secure and transparent.
Australia has in general done a better job than most countries in terms of creating frameworks for the existence of cryptocurrency (including very thorough government-provided tax guides) so there’s something really cool about this.
Seeing our own stock exchange embrace this technology is awesome and is a massive signal to stockbrokers (many of whom are big banks) as to where the future of finance lies.
The ASX site indicates that they believe the advantages of their blockchain solution, which they are calling their Distributed Ledger Technology (DLT) solution, will include faster transactions and better data for traders and companies alike.
While their new system is not built on any cryptocurrency, the fact that every Australian investor is going to be reliant on the blockchain is going to open the next wave of Australians to crypto markets and platforms.
Bring on 2021!
These guys are behind a lot of corporate blockchain technology.
Digital Asset is the one developing the ASX’s blockchain system.
They are backed by big finance companies including:
And they have partnered with the likes of:
Essentially, they want to work with regulated financial institutions to integrate more efficient blockchain solutions, and the promise of that outcome has already generated over $100 million in funding since 2014.
They’re using that backing to work on distributed ledger technology across Australia, Switzerland, and the United States, creating some of the most high-profile leaps in blockchain technology.
If you’re a more libertarian crypto and blockchain enthusiast, maybe Digital Asset aren’t particularly exciting to you, and instead seem to be primarily a representation of the corporate centralisation of blockchain technology.
Regardless of politics, what’s certainly true is this: innovation, technological improvement, and adoption are all far more likely to occur for blockchain technology as more people begin working on it in a professional capacity, and as it begins to comprise the backbone of more and more of the technology we use every day.
As the cliché goes: this is good for Bitcoin.
Okay, so it was hard to pick the final entrant on this list. What made it so difficult is that there are two big conglomerate projects at the lead of financial blockchain technology:
Both are competing within a similar market. Both consortiums want to develop the leading platform for global bank transactions and credit lending.
Coindesk reported in September 2018 that R3 spent much of the year trying to “muscle in” on USC’s multiple-company team—a consortium of 17 member organisations, most of which are major banks from all around the world.
R3 is also a consortium, though a more solidified and public facing one, which has in the past worked with HSBC and other members of the USC consortium.
Ultimately, R3 failed to take on the USC project after the consortium unanimously voted against them.
R3 wanted to convince the consortium to develop USC on their Corda platform, as opposed to on the Clearmatics Distributed Virtual Machine platform.
Is that all clear?
We’ll be the first ones to admit it’s a bit to get your head around.
There’s a huge number of similar sounding words and semi-familiar names involved in all of these projects.
You’ll remember HSBC from the first entrant on this list, IBM and their Hyperledger Fabric project.
It seems the more you look, the more you find that a lot of these large financial institutions are hedging their bets by investing in several blockchain market competitors at once, making sure that when the winner is finally revealed, they’re onboard from day one.
And this is fine, theoretically—after all, what do you expect when these companies have access to so much centralised capital? They might as well spend it.
But let’s get back to R3.
It’s easier to talk about R3 rather than USC because it’s actually possible to at least get an approximation of what exactly R3 does.
Not to mention that, as Aussies, we love an underdog—and losing out their bid to take on USC seems to have been a bit of a blow to R3, if industry whisperings are to be believed.
Of course, there’s another blow that R3 have taken, which they realistically brought upon themselves: their constant insistence that they’re not creating a blockchain.
Apparently, their Corda platform is just a “distributed ledger”.
To us, that sounds like splitting hairs.
For instance, Fintech company Finastra just built a syndicated loan platform on top of Corda called LenderComm, and they described it as being “blockchain-powered”.
But if Corda isn’t a blockchain, then where’s the power coming from?
Utility Settlement Coin is more open about being a blockchain platform—though that’s in the context of a corporation that’s not particularly open about anything.
Despite the massive names behind it and the fact the project is massive enough to rebuff R3’s offer to take over, this is easily one of the hardest projects to research.
Some articles, such as a September 2017 article by Financial Times Alphaville, suggest that USC isn’t even a blockchain project—it’s just using the language of blockchain in order to garner interest.
This is the opposite of R3, which insists it is not developing a blockchain despite many commentators suggesting that it absolutely is.
Technology is messy, and there’s a lot of hyped-up jargon surrounding blockchain which can make the industry and its key players difficult to navigate.
What’s important is this: the most exciting things being built in Fintech are all at the very least tangential to the blockchain, and we are only going to see the technology improve from here on out and become a bigger part of the world we inhabit.
Bring it on.
Other helpful links:
Most people involved in the cryptocurrency space who aren’t motivated purely by monetary gain will likely find themselves at some point saying something like this: “One thing I really like about cryptocurrency is that it’s decentralised, and that the currency isn’t owned or controlled by a bank or state.”
With all that in mind, this article will teach you to understand the key differences, successes, and failings of both centralised and decentralised crypto exchanges.
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