Why Financial Institutions Are Interested In Blockchain Technology

Screen shot 2015-10-01 at 2.22.24 PMSome of the world’s largest banks have joined a consortium that is looking into how blockchain technology could play a role in finance.

The consortium is led by tech firm R3, and is developing a framework that will allow blockchain technology to be used in markets. The blockchain is best known as the underpinning of Bitcoin. For the Bitcoin currency, the Blockchain acts as a shared database that’s a ledger of all transactions made in the Bitcoin network.

Does that necessarily mean that Bitcoin itself will play a role on Wall Street? Probably not, experts say; while blockchain is primarily used right now as “Bitcoin technology,” it’s the technology itself, not the Bitcoin, which financial institutions are interested in.

The banks involved in the consortium, which include UBS, JPMorgan, Goldman Sachs, and HSBC, are examining how blockchain technology could make transactions more efficient. The R3 consortium isn’t the only group interested in blockchain: a host of financial services institutions – banks, exchanges, and clearing houses – are looking into how blockchain technology could enhance security and lower costs and errors when it comes to transactions.

Earlier this year, Nasdaq OMX, the company behind the Nasdaq stock exchange, started testing a system that uses blockchain technology on a private trading platform.

Wired reports that Nasdaq will use the blockchain technology to handle the private market’s trades, replacing older technology that pre-IPO companies use – like spreadsheets – to track stock sales and trades.

The blockchain technology could play a role in public markets as well, replacing decades-old technology.

“Today’s public markets are woefully inefficient, taking up to three days to settle trades,” Wired reporter Cade Metz writes. “The blockchain could help change this.”

 

The following two tabs change content below.

Leave a reply