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17 Sep, 2015 00:43

Global banking giants join forces to make bitcoin technology mainstream

Global banking giants join forces to make bitcoin technology mainstream

Nine of the world’s largest investment banks including JP Morgan and Goldman Sachs have partnered with New York-based tech startup R3CEV. The firms are looking to develop common standards using the same technology behind bitcoin.

The “blockchain” technology R3CEV is working on underpins the internet-based bitcoin currency. The controversial “cryptocurrency” doesn’t have a central authority – its security comes from the network of all bitcoin users who share the same protocols, which together act as a distributed ledger to keep track of every transaction. Not having a central authority means that an internet-wide catastrophe would have to occur in order to compromise the integrity of the ledger.

The banks collaborating to make use of the blockchain technology in mainstream finance are JP Morgan, Commonwealth Bank of Australia, BBVA, Barclays, Goldman Sachs, UBS, Royal Bank of Scotland, Credit Suisse and State Street. They see it as a way of instantly updating payment ledgers and transferring money without relying on the trust of a central authority.

READ MORE: France’s biggest bank BNP Paribas tests bitcoins - media

Many of those in the partnership have independently expressed interest in studying the much-hyped distributed ledger system, but this is the first time that a concerted effort has been made to work it into an industry-wide standard.

“If you’re looking to introduce applications with distributed ledger technologies to improve the financial markets, you can’t have each participant working to a different pattern,” said Christopher Murphy, global co-head of FX, rates and credit at UBS told The Financial Times. “What R3 ... [is] doing is bringing a consensus which could establish common standards.”

The partnering institutions will form working groups to develop blockchain prototypes and proofs-of-concept for use within the broader financial industry. R3 has already spent months working with Wall Street on the technology, including hosting industry roundtables and assisting with banks’ internal investigations, according to Coindesk.

R3’s aim is to establish consistent protocols that would create a networking effect, allowing banking information to exist in a network and be verified against the information of counterparties.

“This partnership signals a significant commitment by the banks to collaboratively evaluate and apply this emerging technology to the global financial system. Our bank partners recognize the promise of distributed ledger technologies and their potential to transform financial market technology platforms where standards must be secure, scalable and adaptable,” R3 CEO David Rutter said of the partnership.

READ MORE: First Bitcoin-based security starts trading on Nasdaq Nordic

The banks are also backing R3 with several million dollars of seed capital, according to The Financial Times.

Rutter said that R3 and its partners would first deciding on what underlying architecture for the technology to operate on, but it has not been decided whether they would be using a bitcoin-type blockchain or another one.

Representatives from the collaborating banks said that the partnership helps harmonize the otherwise disorganized development of the technology.

"Right now, you’re seeing significant money and time being spent on exploration of these technologies in a fractured way that lacks the strategic, coordinated vision so critical to timely success. The R3 model is changing the game,” said Kevin Hanley, director of design at Royal Bank of Scotland, according to Coindesk.

The success of this endeavor is largely dependent the sharing of ideas and the overcoming of mutual distrust which rival financial institutions may have. Some banks, such as Barclays and UBS, are developing their own in-house blockchain systems on the side and partnering with other startups, according to The Financial Times. “You don’t put all your eggs in one basket – you hope one of the bets pays off,” said the chief information officer at one investment bank