CNBC reports that 40 of the world’s leading banks, including Goldman Sachs and Barclays, have been experimenting with blockchain technology – the decentralized database system that records bitcoin transactions – for trading fixed income assets.
While the technology is still undergoing trials, this is a positive sign that major financial institutions are considering possibilities for wider integration.
Blockchain functions as a transparent online ledger that stores transaction history on a global network shared by all participants using the system, making it difficult to tamper and manipulate records.
Besides improving security, blockchain will also allow for an increased number of transactions as the technology could settle trades in a matter of minutes – something that at present can take days to achieve.
What makes this possible is the concept of ‘smart contracts’ – a computer code that executes automatically once the terms of a contract are met and subsequently recorded in the blockchain.
To get the trials off the ground, Barclays and company have been collaborating with a group of tech companies, including Chain, Ethereum, IBM, Intel and R3 CEV.
CEO of R3, David Rutter comments that “[t]his development further supports R3’s belief that close collaboration among global financial institutions and technology providers will create significant momentum behind the adoption of distributed ledger solutions across the industry.”
“These technologies represent a new frontier of innovation and will dramatically improve the way the financial services industry operates, in much the same way as the advent of electronic trading decades ago delivered huge advancements in efficiency, transparency, scalability and security,” he adds.
Blockchain could potentially be applied to other uses too. Nasdaq, for instance, has previously used the technology for (remote) voting in shareholder meetings as well as for trading shares.
➤ 40 banks test bitcoin tech for trading bonds [CNBC]