Six more of the largest banks in the world have joined the blockchain-based “utility settlement coin” (USC) project. The financial consortium now wants to work closer with central banks.
Barclays, Credit Suisse, HSBC, MUFG, Canadian Imperial Bank of Commerce, and State Street joined the group yesterday. The utility settlement coin project started a year ago with founders UBS, Deutsche Bank, Santander, and BNY Mellon.
Several (but not all) members of the group are also part of the R3 consortium of financial institutions. USC itself is not an R3 project, however — it’s based on a product designed by Clearmatics Technologies.
USC also has competitors: Goldman Sachs received a patent for a rival technology called “SETLcoin” in July 2017.
USC Would Free Up Billions, Speed Inter-Bank Transactions
The new USC currency would, in theory, use blockchain or distributed ledger technology to clear and settle inter-bank transactions more efficiently. Scheduled to go live in late 2018, it will also help free up billions of dollars the banks use to back up international trades.
USC coins will be easily convertible into various national fiat currencies and financial securities (such as bonds and equities) traded between the banks.
Currently, the banks (like ordinary companies and people) rely on centralized clearing houses to process and finalize transactions. This is time and resource consuming. The hope is that blockchain technology will enable faster and less expensive transactions, just as Bitcoin promises for everyone else.
According to a FT report, the group intends to introduce the new system incrementally and with caution at every step. Banks were initially skeptical of blockchain over fears of fraud, security and privacy — but have gradually been swayed. These issues are at the forefront of the group’s talks with central banks.
Should the Bitcoin and Blockchain Industry Be Interested in Big Banks?
Some in the cryptocurrency and blockchain industry have wondered aloud if large international institutions really need decentralized technology.
“Why would big banks need blockchain for clearing and settlement? They are centralized anyway, and on-chain transactions are harder to process,” said Fei Fei, VP of corporate alliances at decentralized banking project LakeBanker.
“Small patches to the existing banking system are nothing revolutionary. This is not in the spirit of blockchain or decentralization.”
Actually Good News for Bitcoin, Blockchain?
Whether the result is clear efficiency gains for mega-banks or not, the news may be welcome for other blockchain projects too.
Half the battle for Bitcoin and blockchain is acceptance — convincing the public their technology is legitimate and safe.
Perhaps these so-called “bankchain” projects aren’t revolutionary to the average person. Indeed, many in the blockchain industry aim to replace the current financial system, rather than work within it.
However projects like USC and SETL grab headlines, and play a role in explaining and “normalizing” blockchain and cryptocurrencies. They build trust and confidence in open digital assets like Bitcoin and Ethereum, among an audience who may otherwise be reluctant.
What’s your opinion on USC, SETL and other “bankchain” projects? Let us know.
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