Big Banks Are All Over Blockchain

To process derivatives, currency trades, transactions, etc. Just don’t call it cryptocurrency. It’s a “digital currency.”

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

As a general rule, most bankers disparage cryptocurrencies, like Bitcoin, as anything but purely speculative instruments. But they don’t disparage blockchain, the technology that underpins cryptocurrencies. On the contrary. They’re pouring money into developing their own “digital currencies,” as they call them. Just don’t call them “cryptocurrencies.”

UBS, BNY Mellon, Deutsche Bank, Santander, the market operator ICAP, and the startup Clearmatics formed an alliance in 2016 to explore the use of digital currency between financial institutions and central banks, using blockchain.

The ultimate goal of the project is to create a digital currency known as Utility Settlement Coin (USC), which will facilitate payment and settlement for institutional financial markets. As the FT reported in October, commercial banks are growing tired of waiting for central bankers to take the lead in fending off the challenge that standalone cryptocurrencies such as bitcoin could pose to their control of monetary policy, and are pressing on with their own pet projects.

According to Deutsche Bank’s website, USC is “an asset-backed digital cash instrument implemented on distributed ledger technology for use within global institutional financial markets.” It consists of a “series of cash assets, with a version for each of the major currencies (USD, EUR, GBP, CHF, etc.) and is convertible at parity with a bank deposit in the corresponding currency.”

It’s easy to see the attraction blockchain holds for big banks like Deutsche, UBS and Santander: Combining shared databases and cryptography, the technology offers multiple parties simultaneous access to a constantly updated digital ledger that cannot be altered. With it, banks could offer a safer, faster, cheaper, more transparent service to their customers, while doing away with the need for a central operator.

Settlements could be executed almost instantaneously on a bank-by-bank basis rather than having to be netted at the end of each working day by the respective central bank. The subsequent cost savings could be huge.

“Recent discussion of digital currencies by central banks and regulators has confirmed their potential significance. The USC is an essential step towards a future financial market on distributed ledger technologies,” commented Julio Faura, Head of R&D at Santander.

Like Santander, Spain’s second biggest bank, BBVA, has been pouring funds of its own into blockchain technology. In April, it announced that it had conducted its first ever international money transfer pilot based on San Francisco-based Ripple, a “gross” settlement system in which the payment orders are processed and settled one by one (without compensation) and in real time (continuously). The bank said it had managed to execute payments between Spain and Mexico in a matter of seconds compared to the standard four-day period.

There are also big opportunities in clearing and settlement. At the beginning of this year, the Depository Trust and Clearing Corporation (DTCC), the world’s largest financial services corporation dealing in post trade transactions, announced that it intended to shift post-trade clearing of single-name credit default swaps on to a blockchain system by the end of next year. It picked IBM to head up the project. If the project is a success, the plan is to do the same with other derivatives processed by the giant US clearing house.

But perhaps the biggest area of interest for commercial banks is in the field of customer and counterparty identification and verification. Banks, largely at the behest of government, have been trying for years to set up a shared digital utility to record customers’ identities and keep them updated, but with limited success. Now, the blockchain could offer a solution because of its cryptographic protection and its ability to share a constantly updated record with many parties.

“We think identity could be big,” says Mr Whitehouse at Accenture, which recently worked with the UN and Microsoft on a blockchain identity system for people with no identity papers.

In Singapore a consortium comprising a local government body and a number of major banks, including HSBC, Mitsubishi UFJ Financial Group (MUFG) and OCBC Bank, has just completed the ASEAN region’s first-ever proof-of-concept for a “Know Your Customer” (KYC) blockchain. Using distributed ledger technology, the KYC blockchain enables information to be recorded, accessed and shared across a distributed network among participating banks.

In essence, banks will be able to register, validate and share customer information – presumably with the customer’s consent – in an efficient, secure and instantaneous manner. In other words, in the mother of all ironies, a technology that has so far been geared at guaranteeing anonymity in transactions, or at least has been marketed on that basis, could soon be used by banks to keep much closer track of, and share data on identities, money flows, transactions, and spending habits. By Don Quijones.

“With friends like these…” read…  The Inconvenient Limits to European Unity & Integration

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  32 comments for “Big Banks Are All Over Blockchain

  1. Robert says:

    Too complicated. Sorry.


    Internet down ? Sorry.

    Electrical utilities knocked out by EMP. Sorry.

    DOS (Denial of Service) attack by a malicious state.


    When this fails, those who believe in this nonsense will get a REALLY good lesson. That’s how life works.

    I am betting on an EMP or a DOS attack.

    • Wolf Richter says:

      The blockchain has not been hacked yet. What has been hacked many times are the exchanges and wallets.

      • Prairies says:

        I don’t think anyone blames blockchain, but if Equifax hacks, Uber hacks, crypto hacks etc. show how vulnerable any online transfer system is – whether it be outside attacks or inside leaks. You can’t supply a security guard with a gun to a digital system, coding is too easy to manipulate without detection. All virus scan tools give you updates after a virus is created, not before. All cryptocurrency is safe after the theft, not before.

      • Nat says:

        I understand the distinction, but it does leave an interesting question:

        If the block chain is unhackable, but all its end points are easily vulnerable, isn’t the currency medium just as vulnerable as if the block chain itself were full of security holes?

        • Wolf Richter says:

          Yes, I think that question weighs on many minds. Actually, I don’t think blockchain is “unhackable” – every software is hackable – it just hasn’t been hacked yet, or at least, we don’t know about it. But nothing that is connected to the internet is totally secure, never has been, never will. So I think this problem will stay with us.

      • MR K C HIGGS says:

        Blockchain being distributed is pretty robust against emo in a way those 1s and 0s are not. All you need is a full node and anybody can have one. Try recovering funds from bank account post emp.

    • cdr says:

      Good start. Let’s add

      “sorry, we only accept Chase and Citi bitcoin, nobody else”

      ” No bitcoin accepted today … volatility alert was issued.”

      However, what happens if the blockchain at the bank is destroyed. There goes everyone’s property records.

      FBIC = Federal Blockchain Insurance Corporation?

      Blockchain for data, instead of using the county recorder, is possible. The county recorder will still be needed. They are a paper blockchain today. Technology would automate them. I expect to see a variation of it there way down the road.

      • Kraig says:

        They would just pull the data from the next nearest full node. You can have nodes without the ability to mine. It runs like the internet not the telephone. It is harder to kill a.decentralized system since no single point of failure.

    • A blockchain can be implemented with as little at 200 lines of code. It’s a linked list, something a first year computer science or engineer learns. It’s really simple, sorry.

      An EMP would basically need to take out all computers on the planet. Blockchains are distributed systems and resistant to node outages. Sorry

      Virus, hacks and DOS? It takes more than 50% of a Blockchain’s proof of work system to alter it in a nefarious way. The probability of doing that is like being eaten by a shark on a Thursday while being struck by lightening, climbing a mountain, at 8:01am…

  2. Mark says:

    Just call it pure simple name BS coin.

    • alex in san jose AKA digital Detroit says:

      I can’t hold one in my hand. There are no elaborately engraved certificates saying I own one. It depends on electricity, does everyone forget that coins and currency go way back before electricity came into use? BS coin indeed.

      • Wolf Richter says:

        Your comment depends on electricity too. Without it, it’s gone. As are many things. Get used to the digital age.

        • Robert says:

          Come on Wolf you are better than that. “Comments” are not what we are discussing here. We are discussing “cash”.

          If you go to bed at night with a Ben Franklin or a Gold Double Eagle in an appropriately secure spot, it will still be there when you awaken in the a.m. — or in the New Year — or even in the next decade.

          A Ben F. or a Gold Coin cannot expire, has no version or fork in it, and depends on nothing but prudent good sense for security and accessibility.

          Not everything has a digital analogue. Such as the smell of a rose, a kind touch, or the taste of spam !

          Have a great and happy Holiday Season, this Festival of Lights and I love you ! Really !

        • cdr says:

          Robert, what you say is true about gold, unless, of course, it’s paper gold that is only a bet on the price of physical gold. And, of course, assuming it actually exists in the vault of the place that’s supposed to be warehousing it. And, of course, if it wasn’t used as collateral for a loan by the warehouser.

          On the other hand, I think gold lovers are just plain nuts crazy jealous over how bitcoin is rising in value just like gold is supposed to, and gold is dead as a doornail in pricing.

          Anyway, if gold were jumping around in price, how many gold people would ignore the fact it embodies the same qualities of fiat as bitcoin and actual fiat? Gold would be just like bitcoin if it were backing currency as ‘sound money’. A very flexible denominator. No different than plain fiat alone, except gold adds management overhead to calculate the daily spot denominator for gold to fiat exchanges.

          Of course, gold advocates would say “No, gold is different because it’s true money and bitcoin is computer tulips.” The bitcoin lesson would just bounce off them.

  3. Old Engineer says:

    Like Robert, I’m skeptical. The existing Bitcoin database has to be minuscule compared to the sizes of the bank databases. And they are complaining now about the time and electrical power required to process a transaction. What will the cost and processing latency be for these enormous data bases with billions of transactions per hour? And as for security, every week we read about another crypto exchange that’s been robbed. Not to mention the financial institutions that are regularly hacked (including the Fed).
    While it not be worth decrypting individual communications to get credit card numbers one by one, it’s probably worthwhile in order to rob a bank.
    And it isn’t clear if the banks are going to use a few supercomputers under their control to do the processing or are the going to use the Bitcoin paradigm of “mining”. Robert has listed just some of the problems with mining.
    So it seems people have thought about as far ahead on Blockchain as they have on crypto currencies. Maybe we should start out by trying out blockchains on something low impact like car tags or dog licenses and see how it goes.
    It seems

    • Jaco says:

      Old Engineer —-

      I’m not skeptical, I’m downright sick to my stomach over it. This block chain BS, however great the geek-minded may feel it is– I see as a very stringent control mechanism that can trap huge blocs of the population, as the most important aspects of their wealth become digitized and they no longer have the same control.

      And further more, the crypto geeks that have simply gone bonkers–if you don’t believe me go to stocktwits and see for yourself—always tout that the block chain and the cryptos are so great because they operate in decentralized manner, without interest attached.

      From the Central Banks perspective, there is nothing further from the truth. Everything I’ve read lately has led me to believe they fully plan to go forth with digitized interest-laden money creation.

    • RagnarD says:

      Good point – testing on ie dog tags first

    • Maximus Minimus says:

      As I understand it, mining created more bitcoins. So have nothing to do with what the banks are dreaming up. To wit, mining apparently uses huge amount of power. I suppose, to emulate the real life experience of getting gold out of the ground. But then, it would not be a true offshoot of the monopoly game if it didn’t

    • Kraig says:

      This is one reason why they need their own chain as well as volatility.

  4. robt says:

    ‘Decentralized’ Blockchain is really just a centralized bookkeeping system, but it’s not anywhere, it’s everywhere and nowhere. Every transaction would have to take place in it, with no door to knock on and nobody to call if something goes wrong. Like today’s coin exchanges that people have sent hundreds of billions of dollars to, there is not even an address. (Fun exercise: find the address of any coin exchange.)
    You could go to your bank, but what could they do to correct a failure of the system? Zero points if you think they’d give you your money back.
    Anyway, the UTC proposal just plugs into the ‘One World Currency’ fallacy, the recurring dream of centralists and NWO fantasists. Would even Brussels be usurped, or would it be based in Brussels? It’s not reasonable to expect that the system would remain unregulated for long.
    But what to regulate? An organic ‘decentralized’ system?
    Proposal: Originating Currency -> UTC -> Local Currency.
    Why not Originating Currency -> Local Currency?
    Because ultimate objective is: Originator UTC -> Recipient UTC.
    Lotsa luck with that. Like a giant Euro, with every nation pretending to be fiscally responsible, after they’ve all been convinced to give up their monetary sovereignty (/sarc).
    Meanwhile, in other news, the coin market is collapsing, with Bitcoin and Bitcoin Cash both down over 30% , or 130 billion dollars market cap in the last 4 days for just these two. The overall coin cap of the almost 1400 coins and (anyway worthless) tokens is down over 100 billion.
    It could very well bounce back 50% in the next two days for all we know, but the coin market will never be the model for stability in pricing transactions.

  5. OutLookingIn says:


    No. Not even close.

    Crypto coins are nothing more nor less, than electronic tulip bulbs.
    Thus a purely fictitious form of wealth.
    Relying upon a computer system for their survival.

    Those that insist on calling crypto coins “currency” have absolutely no idea of what true “money” is and how it functions.
    How can a so-called currency hyperinflate? If not suffering from hyperinflation? Could it be the US dollar is that worthless for all to see?
    Or could it be the biggest fraud committed against those gullible enough to dispose of their hard earned wealth so callously?

    • Tom says:

      I look at crypto’s as an ingenious way to soak up all the excess fiat and let it magically disappear .Happy holidays!!

      • Wolf Richter says:

        The fiat actually doesn’t disappear. It just gets transferred. When you pay $1,000 to buy some crypto, someone gets this fiat. It might flow into offshore murky channels, but it’s still there.

  6. intosh says:

    Not just banks:

    “Long Island Iced Tea shares went gangbusters after changing its name to Long Blockchain”

    The stock market is a casino game where players participate based solely on hype and on fear of losing out, while hoping they won’t be the suckers left holding the bag when the music stops.

    • mean chicken says:

      Although many are often confused by their needs and even by the sexual orientation of others to various degree, most everyone has common basic needs, despite what they may claim.

      So it’s not all a casino, and unfortunately many have gone offshore but there are legitimate companies out there who actually concentrate on manufacturing useful items, as opposed to for instance, well marketed pet rocks.

  7. Realist says:

    Well, it is possible to launder for example bitcoin so that the history stored in the blockchain is wiped away, thus it will be possible to launder these thingys that the bankers are dreaming up around blockchain technology.

  8. Maximus Minimus says:

    Slightly off topic, but I thought I mention a comment which appeared on the Actingman site:
    “Saturday I was waiting in the line at a battery store… a kid behind me asked me if I was in Bitcoin and Google and a few other of the hot ones…”
    “I’m not kidding. Then later after he left, another guy asked me what stock he was talking about…”

    The shoe-shine boys are back. Could 2018 be the year to live dangerously?
    But then, we can’t have a recession without major economists saying so…

  9. Interesting that Bitcoin is a bubble and most of the Blockchain stocks are still OTC. Most serious analysts respect what Blockchain technology can do, but like B2B it remains an intra-industry product. Business are more circumspect about going in debt for software and equipment, while consumers will buy anything and charge it.

  10. mean chicken says:

    So does this mean criminal enterprise banks have finally discovered how to launder money undetected?

    They need a tool like that, where anything transacted outside their control is by definition guilty and everything inside is legit.

    Now if they could only tax air, add sir-charges and service fees……. I’m sure they’ve got legislation ready to implement, if not already.

  11. Mango says:

    Blockchain is way too slow and will be obsolete. It seems safe, but nobody is quite sure. Blockchain can be rewound and editid….what the heck is that ?? That is not being ‘immutable’…..Hashgraph will be next and make the blockchain look like a slow dinosaur.

    • RepubAnon says:

      I’m not so much worried about someone hacking blockchains as I am somebody coming up with a way to corrupt the data so thoroughly as to make it unusable. Say, someone looking to destabilize the world financial markets.

  12. Jim says:

    Bitcoin is the world’s biggest chain letter.

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