The number of larger financial services firms and other companies developing blockchain systems and cryptocurrencies reflects a growing, deep-rooted belief in its promise. These organizations see the blockchain’s value in processing transactions faster and increasing accountability and transparency more effectively than traditional systems.
Their projects are wide-ranging
Some financial companies are looking to develop new payment systems and to forge closer relationships with their consumers, by issuing digital coins based on blockchain that can be used to purchase their own products and services, and possibly other products and services. Others are drawn by blockchain’s potential to innovate new financial products and services or to replace internal systems. Still others are looking to join in the cryptocurrency investment boom by creating virtual coins that can be held as stores of value.
Consider Utility Settlement Coin, or USC, launched by Swiss bank UBS with blockchain partner Clearmatics in September 2015. Joining the project more recently have been major international financial firms including BNY Mellon, DeutscheBank, Santander, HSBC, State Street, Credit Suisse, MOFG and Barclays.
The goal of the USC is to develop a new asset-backed international digital payment mechanism for interbank payments, using blockchain or distributed ledger technology to avoid clearinghouses and intermediaries. In the process, the USC is likely to create a path for central banks to issue their own cryptocurrencies.
Japan’s largest bank, Mitsubishi UFJ Financial Group (MUFG), is already preparing to do that. The company announced it will launch its own digital currency using blockchain technology in 2018, the Mainichi.jp news agency reported in January.
The MUFG coin (MUFG) will allow users to carry out instant person-to-person payments and to shop for products and services with lower fees. The company said it will process the transactions on its own network, and intends to link the value of the MUFG coin to the value of the yen to maintain users’ trust.
Crypto Coins and Oil
Financial companies also are developing crypto coins backed by real assets. For example, the Oilcoin public token, set to go on sale in early 2018, is backed by barrels of oil held in reserve, with each token representing the value of one barrel the investment group behind the project announced in a December 2017 press release.
The project is led by a team including Bart Chilton, former commissioner of the U.S. Commodity Futures Trading Commission (2007-2014). Supporting the OilCoin with a physical asset is intended to provide users with a safe haven from virtual cash price volatility.
In a similar vein, the Tiberius Group commodities fund in Switzerland announced the development of the Tiberius Coin to be supported by metals. It will be distributed in several versions based on the underlying metals: for example, one coin reportedly will be backed by rare metals such as palladium, platinum and gold, while another would be backed by industrial metals including copper, tin and zinc. The metals will be stored in warehouses and refineries around the world.
In India, Reliance Industries, the country’s largest conglomerate, is developing its own cryptocurrency, JioCoin, through its telecom subsidiary Reliance Jio Infocomm. The initial application is supply chain logistics, but other applications may include loyalty points that could be used on products and services including Jio Phones, JioTV, JioNet WiFi, as well the Jio Money digital wallet for discounts on food, travel and clothing.
What Lies Ahead
Financial organizations worldwide are exploring the possible impact of blockchains
on their businesses. In a survey of 200 banks in 2017, 15 percent reported they expect to have blockchains in commercial production, according to a study by the IBM Institute for Business Value and its Economist Intelligence Unit. While blockchain offers great promise, the finance trailblazers “see a significant wall of disruption heading their way in core business areas,” the IBM authors wrote.
How will this play out? Major financial companies will have to grapple with the potential and the challenges of blockchain, wrote Alex and Don Tapscott in the Harvard Business Review. “The unstoppable force of blockchain technology is barreling down on the infrastructure of modern finance. As with prior paradigm shifts, blockchain will create winners and losers,” the Tapscotts wrote.