Less than 1% of internet users are currently using bitcoin as an active currency, but incumbent financial institutions around the world are busy testing the blockchain technology that supports the digital currency. Many of today's top blockchain projects are being run via financial industry consortia, comprised of top financial firms, technology providers, and consultants.
Here are a handful of the most meaningful bitcoin projects to date:
Credit Default Swaps
Participants: JP Morgan, Citigroup, Bank of America Merrill Lynch, Credit Suisse
Technology/service provider: Axoni
A handful of major banks, including JP Morgan and Citigroup, are testing blockchain technology to help with record-keeping for credit default swaps (CDSs). As an over-the-counter product, it can be a challenge to keep track of CDS transactions. This new test, administered by Wall Street’s unofficial librarian, the Depository Trust Clearing Corporation, successfully showed that payments, amendments, novations and compressions for CDS can be run on blockchain.
Hyperledger Project
Participants: JP Morgan, Deutsche Borse Group, more
Technology/service providers: IBM, Intel, Digital Asset, more
The Linux Foundation helped promote the development and uptake of opensource software. Now, it’s doing the same for bitcoin and blockchain technology. Originally launched as the Open Ledger Project and recently rebranded as the Hyperledger Project, the foundation intends to evangelize the future of finance and to create industry-wide standards. The project is a collaborative, cross-industry open standard for distributed ledgers supported by major financial institutions including JP Morgan, Deutsche Borse Group, BNY Mellon, and ANZ. The organization wants to spur discussion and imagination around the future of supply chains, payments, contracts, and ownership of digital assets.
Commercial paper trading
Participants: R3CEV
Technology/service provider: Chain, IBM, Intel, and Eris
R3CEV is a blockchain startup that’s structured as a consortium of numerous financial institutions, including dozens of banks. In addition to a test using the Ethereum network, R3 recently ran a pilot focused on commercial paper trading. 40 banks participated in the test case. Participants needed to model a financial asset (in this case, commercial paper) and structure a variety of smart contracts for trading that asset — all using blockchain. According to The Wall Street Journal, the goal of the test was to give the banks an opportunity to compare and contrast 5 different blockchain offerings on the market today, including Eris Industries, Ethereum, IBM, Intel and Chain.
Private company capitalization tables
Participants: Nasdaq
In a market with few IPOs, Nasdaq has found other ways to court entrepreneurs and venture capital investors. By building tools and offering in-house and via acquisition of other providers, the stock market seems intent on finding other ways to do business with private companies via Nasdaq Private Market. The same division is experimenting with blockchain technologies. Its blockchain product, Linq, is the first public trial of blockchain technology by a major global stock exchange. One of the first applications of the technology set will help entrepreneurs and private companies manage their cap tables. Eventually, firms using Linq could use it to create, buy, and sell new shares in their companies.
Repurchase agreements
Participants: DTCC
Technology/service provider: Digital Asset
Repurchase agreements, better known as repos, are contracts that enable financial institutions to borrow from one another on a short-term basis by selling securities and buying them back at a set date. DTCC takes in around $2 trillion worth of these agreements daily in the form of thousands of transactions. Participants don't see a marked difference in their businesses by switching over to blockchain technology, as trades generally settle daily anyway. What it should do, though, is allow financial institutions that are involved in multiple repos to net them out against each other on a given day.
Darrell Duffie, a professor at Stanford’s Graduate School of Business told Fast Company, "I think it’s a smart move," he says. "It will allow intraday settlement and better netting efficiencies, so it’s a win-win for liquidity in the repo market."
Japanese Stock Exchange
Participants: Tokyo Stock Exchange, Nomura Research Institute
The operator of the Tokyo Stock Exchange intends to “assess the usability as well as the challenges of blockchain technology when applied to securities markets”. The Japan Exchange group is conducting this project with IBM Japan. JPX plans to conduct proof-of-concept tests to evaluate blockchain technology in markets that have low transaction data volume.