US Financial Institutions’ Interest in Blockchain

Amit-GoelAuthor


 

Amit Goel

Co-Founder at LetsTalkPayments.com

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When bitcoin came into existence, companies were optimistic about its future. As participation from companies increased, the industry witnessed extreme fluctuations in bitcoin prices. Bitcoin prices reached their zenith in 2014 and are currently trading at around one-third of its all-time high. As the cryptocurrency segment witnessed immense pressure last year, there came a savior in the form of “blockchain.”

Today, most financial institutions are focusing on blockchain: the technology that underpins the bitcoin virtual currency. This innovation carries a significance that stretches far beyond cryptocurrency. For bitcoin, the blockchain will act as a globally-distributed ledger that logs transactions. The technology will verify each deal that takes place with respect to bitcoin. The sheer number of people involved makes it very hard for one bitcoin user to get fraudulent deals verified and approved. The technology will also help in bringing better accountability. Blockchain allows people who have no particular confidence in each other to collaborate without having to go through a neutral central authority.

While we have previously provided a list of banks that are exploring blockchain, it is a known fact that apart from banks, multiple industries have been exploring the bitcoin technology. While banks are largely looking at improving the speed of transactions and reducing the cost of cross-border transactions, the list below provides a complete picture on the use cases of financial institutions (FIs) in blockchain:

US Federal Reserve:

Federal Reserve is reportedly working with IBM on developing a new digital payment system tied to blockchain.

Goldman Sachs:

Goldman Sachs participated as a lead investor in bitcoin startup Circle Internet Financial Ltd.’s $50M funding round. It has also reported extensively on bitcoin and blockchain in their annual publication Future of Finance.

NASDAQ:

The stock exchange firm initially revealed (May 2015) that they were planning to use blockchain as an enterprise-wide technology to enhance their capabilities on NASDAQ’s Private Market platform. The NASDAQ Private Market platform is a new initiative that was launched in January 2014 to enable pre-IPO trading among private companies. It has also said that it would leverage open assets protocol, a colored coin concept, to build their private exchange platform. Later, in June 2015, it announced a partnership with Chain, a blockchain infrastructure provider for FIs and enterprises.

Visa:

Visa announced that they would be setting up teams in India that would work along with the teams in the US and Singapore who would together study the multiple aspects of blockchain. Also, Visa, along with Capital One and Fiserv participated in the $30M funding round for blockchain technology startup Chain. The other investors in Chain are Orange SA, NASDAQ, Citi Ventures, RRE Ventures, Khosla Ventures, Thrive Capital and SV Angel.

MasterCard:

MasterCard said that even though they are not currently investing/working on blockchain technology, they are closely watching the space. MasterCard also said that in spite of the technology (blockchain) being interesting, they do not see it as a viable alternative for mainstream commerce.

Not to be late adopters, banks also have been exploring blockchain. The banks which have reported to have expressed interest are are Citibank, BNY Mellon, CBW Bank, Cross River Bank, USAA Bank, Bank of America, and J.P Morgan.

Notable interest is being generated for players providing infrastructure support to enable blockchain and/or enhance its functionality. As an example, Ethereum has developed a similar protocol but with some modification, allowing itself to offer more features than the original bitcoin blockchain. Some of the other FinTech firms providing such services are Ripple Labs, Chain, Eris, etc. With huge investments and an equally large number of startups catering to different use cases, blockchain is considered to be the next wave of change in the tech circles.

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