This year saw the failure of many high-profile blockchain experiments in banking and finance, undermining the technology’s future claims in financial services.
The biggest setback came from the Australian Stock Exchange, which in November abandoned plans announced seven years ago to upgrade its equity clearing and settlement to a blockchain-based platform. The exchange apologized after he booked a claim of A$250 million ($168 million) and acknowledged that the project would have to start over from scratch.
Other initiatives in insurance, banking and shipping are also collapsing, suggesting that shared digital ledgers may flatten out to reform cumbersome operations. Even proponents of the technology warn that adopters should be prepared for multiple failures.
David Newns, head of Six Digital Exchange, which issued its first digital bond on a distributed ledger in November, said: “We are in the realm of invention, so we have to think new things in the hope that many ideas will fail.”
In July, B3i, a consortium of 15 insurers and reinsurers, ceased operations and filed for bankruptcy. The project aimed to reduce inefficiencies in premium and claims settlement and to place contracts on the blockchain.
We.trade, another blockchain consortium of 12 banks focused on trade finance, also went bankrupt in June. The project included Deutsche Bank, HSBC, Santander, Societe Generale and UBS.
Most recently, Maersk and IBM announced in late November that they would be discontinuing TradeLens, their supply chain blockchain solution for the shipping industry, citing “a commercially viable I haven’t reached the level of sexuality,” he said.
The failure came along with the crisis that has swallowed up many cryptocurrency companies that tried to build their businesses on trading and lending digital tokens such as Bitcoin. This culminated in the collapse of his cryptocurrency exchange, FTX, in November.
Still, some banks continue to work on blockchain technology. “There is a lot of negative sentiment about cryptocurrencies these days because of FTX,” said Matthew McDermott, global head of digital assets at Goldman Sachs Global Markets. has nothing to do with.”
Rivals such as Goldman, JP Morgan, and other financial institutions are still open to blockchain technology, citing its potential for efficiency gains and cost savings. JP Morgan is driving the Onyx digital asset platform, which links with other banks and financial institutions such as Visa, processing approximately $1 billion of asset-linked payments per day in currencies and bonds.
But even the groups making the most of blockchain are cautious about its ultimate potential. In November, the European Investment Bank issued his second digital bond using the technology. This is his two-year contract for €100 million arranged by Goldman Sachs, Santander and Societe Generale.
Using this technology could help streamline issues around documentation and payments, but Xavier Leroy, senior funding officer for the EIB’s non-core currencies and special transactions division, said so far The benefits are limited, he said. [benefits] — it’s mostly about future possibilities,” he said.
Some blockchain-related projects rely heavily on existing systems rather than replacing them. In particular, so-called distributed ledgers that allow selected groups of actors, such as banks, to share information about immutable records.
This activity is related to blockchain and crypto assets, but does not involve creating and validating transactions in exchange for token rewards. This is a crucial difference from blockchains on which Bitcoin and other tokens are based.
For example, HSBC describes the FX Everywhere system it uses for currency settlements with Wells Fargo, which has processed over $200 billion in five currencies, as “blockchain-based.” Still, its distributed ledger technology (DLT) relies on Traiana, a well-established market infrastructure that serves as the first step in the system.
“There is a defining element. When you say DLT, people hear blockchain, blockchain, blockchain,” said Mark Williamson, Global Head of FX Partnerships and Proposals at HSBC.
FX Everywhere uses consensus algorithms, cryptographic signatures, and other cryptographic related processes. But “you don’t need blockchain,” Williamson said. It is also only a small part of the total business that HSBC and Wells Fargo handle in currency trading.
A group of technology experts told US lawmakers in June that such “add-only” digital databases were not new. “They have been known and used with fairly limited functionality since the 1980s,” they said.
Responsibilities to shareholders and regulations may also prevent banks from using the types of blockchains that underpin tokens such as Bitcoin.
While these blockchains generally require maintenance by a network of computers that use vast amounts of electricity, a controversial process called “proof of work,” shareholders and regulators We encourage companies to invest in environmentally friendly projects.
Banks are similarly aware that jurisdictions will have to navigate different ways of recognizing tokenized investment products. In December, another Swiss stock exchange, BX Swiss, announced that it had completed test trading of tokenized assets on its decentralized public blockchain. However, it acknowledged that it would need another market license from the Swiss regulator to proceed.
Keith Baer, Fellow of the Cambridge Center for Alternative Finance, said: “If priorities change and goals are not met, the project will fail.”
