Case for blockchain in financial services impaired by failures

A number of top-class blockchain experiments in banking and finance have failed this year and have undermined the arguments for the future of technology for financial services.

The biggest mistake came from the Australian stock exchange, which in November gave up a plan announced seven years ago to convert the clearing and the processing of shares to a blockchain-based platform. The stock exchange recorded a fee of 250 million Aud ($ 168 million) and apologized after she had admitted that it had to restart the project from scratch.

Other initiatives in the areas of insurance, banking and shipping have also collapsed, which indicates that jointly used main books could fail when looking for a reform of cumbersome processes. Even supporters of the technology warn that users should be prepared for several errors.

"We have constant ideas and reject them if they are not appropriate," said David Newns, head of SIX Digital Exchange, which in November emitted the first digital bond on a distributed ledger. "We are in the area of ​​inventions, so we have to come up with new things with the expectation that many of these ideas will fail."

In July, B3i, a consortium of 15 insurance and reinsurance companies, hired its activities and reported bankruptcy. The aim of the project was to reduce inefficiencies in premium and damage regulation and to place contracts on blockchains.

we.trade, another blockchain consortium from 12 banks with a focus on trade financing, also went into bankruptcy in June. The project included Deutsche Bank, HSBC, Santander, Société Générale and UBS.

Finally, Maersk and IBM announced at the end of November that they would hire Tradelens, a supply chain blockchain solution for the shipping industry, because they “did not achieve the measure of commercial viability that is necessary to continue working and to fulfill the financial expectations.

The failures have been accompanied by the crisis that has grasped many of the crypto companies, trying to build their business with trade and rental digital tokens such as Bitcoin. In November, this culminated in the collapse of FTX, the cryptocurrency exchange - a failure that undermined the arguments for the purchase of tokens in the hope of profit.

Nevertheless, some banks of blockchain technology remain obliged. "There are many negative moods towards cryptocurrencies, most recently because of FTX," said Mathew McDermott, Head of Global Head of Digital Assets in the Global Markets Division of Goldman Sachs. "This has nothing to do with the underlying technology."

Goldman, competitors such as JPMorgan and other financial institutions are still open to blockchain technology and refer to their potential for increases in efficiency and cost savings. JPMorgan has advertised its onyx platform for digital assets that combine other banks and financial institutions such as Visa and handles payments in connection with assets of around $ 1 billion per day in currencies and bonds.

But even some of the groups that went the most with blockchain are careful when it comes to their ultimate potential. In November, the European investment bank headed its second digital bond with this technology - a two -year deal over 100 million euros, which was arranged by Goldman Sachs, Santander and Société Générale.

The use of the technology may help to rationalize problems in connection with documentation and payments, but Xavier Leroy, Senior Funding Officer in the Department of Non-Kern Enguts and Special Transactions of the EIB said that the advantages have so far been limited. "Since we are in the initial phase, there are not many [benefit] at the moment - it is mainly about potential for the future," he said.

Some blockchain-related projects are also heavily dependent on existing systems instead of replacing them, in particular so-called distributed ledger, which enable a selected group of actors such as banks to exchange information about an unchangeable data record.

This activity refers to blockchains and crypto-assets, but does not include creating and verifying transactions in return for token rewards-a decisive difference to the blockchain on which Bitcoin and other tokens are based.

HSBC, for example, describes the FX Everything system that used it to settle currencies with Wells Fargo-which has processed more than $ 200 billion in five currencies-as "block chain-based". Nevertheless, his distributed Ledger technology (DLT) supports Traiana, a well-established market infrastructure to act as a first step in the system.

"There is a definition element. Even if we say DLT, people hear blockchain, blockchain, blockchain," said Mark Williamson, Global Head of FX Partnerships and Propositions at HSBC.

fx Everywhere uses consensus salgorithms, cryptographic signatures and other crypto -related processes. But it "does not require blockchain," said Williamson. It also represents a tiny part of the overall business that HSBC and Wells Fargo process in their foreign exchange trades.

A group of technology experts told US legislators in June that such “only adjacent” digital databases were not new. "They have been known for rather limited functions since 1980," they said.

Responsibility towards shareholders and regulation can also prevent banks from using the types of blockchains that are based on token such as Bitcoin.

These blockchains generally require maintenance by computer networks that consume enormous amounts of electricity, in a controversial process called "Proof of Work", but shareholders and supervisory authorities are urging companies to invest in more environmentally friendly projects.

banks are equally aware that they would have to navigate the different types of recognition of tokenized investment products through the jurisdiction. In December, another Swiss stock exchange, BX Swiss, announced that she had completed a test trade in tokenized assets on a distributed public blockchain. However, she admitted that she would need a separate market license from the Swiss regulatory authority to continue

"The challenge is that a number of institutions come together and individual shareholders have to get involved in the trip," said Keith Bear, Fellow at Cambridge Center for Alternative Finance. "If the priorities change and the goals are not achieved, projects fail."