The revolutionary potential of the Bitcoin blockchain - the technology underlying the digital currency - is what led nine of the world's big banks to join together to study ways to apply it to the global financial markets.
The big banks realize that for the Bitcoin blockchain to realize that potential, they need to coordinate their efforts to create a universal system. If these heavy hitters succeed in creating such a standard, any bank in the world will be able to use it.
It's clearly a huge vote of confidence in the Bitcoin technology from a group of very powerful financial institutions.
Member banks include:
- JPMorgan Chase & Co., U.S. (NYSE: JPM)
- UBS Group AG, Switzerland (NYSE: UBS)
- Barclays Plc., UK (NYSE ADR: BCS)
- Banco Bilbao Vizcaya Argentaria SA, Spain (NYSE ADR: BBVA)
- Goldman Sachs Group Inc., U.S. (NYSE: GS)
- State Street Corp., U.S. (NYSE: STT)
- Royal Bank of Scotland Plc., UK (NYSE: RBS)
- Commonwealth Bank of Australia (ASX: CBA)
- Credit Suisse Group AG, Switzerland (NYSE ADR: CS)
Other banks are expected to join the partnership over time. A New York-based startup called R3 is coordinating the project.
"This partnership signals a significant commitment by the banks to collaboratively evaluate and apply this emerging technology to the global financial system," R3 CEO David Rutter said in a statement.
The Bitcoin blockchain is where all the digital currency's transactions are verified and stored. But what has intrigued the big banks is the Bitcoin blockchain's ability to store other data, such as ownership, along with the transaction.
The blockchain makes Bitcoin much more than a digital form of money. It's an entirely new kind of record-keeping system that's faster, more secure, and more transparent than existing systems.
The new partnership will focus on exploring ways the big banks can use the Bitcoin blockchain to save time and money across a wide range of financial activities.
"We held several roundtables...to deeply consider what the possible implications of the blockchain were, and what it could possibly do to save money, and time, and to create a better paradigm for the world of Wall Street and finance," Rutter told Reuters.
Here are some uses for the Bitcoin blockchain that the big banks are considering...
How the Big Banks Plan to Use the Bitcoin Blockchain
Rutter told Reuters one of the first applications of the Bitcoin blockchain the partnership is studying is the issuance of commercial paper. Commercial paper is short-term debt issued by corporations to finance such things as accounts receivable and inventories.
While some entities, such as the Nasdaq OMX Group and Overstock.com (Nasdaq: OSTK) CEO Patrick Byrne's Medici project, are looking at the Bitcoin blockchain as a way to facilitate stock trading, the big banks have other ideas.
"I think that these technologies will probably be post-trade," Rutter told Reuters. "I think savings are in the settlement side, in post-trade, in issuance, but not in exchange trading or OTC trading any time in the near future."
Possibilities include using the Bitcoin blockchain to replace slow and costly back-office functions or as a tool to execute contracts.
But at least initially, the project is more about exploring the possibilities as opposed to figuring out how to make it work. That will come later.
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Still, this partnership is another signal that the world's top financial institutions are taking Bitcoin very seriously.
Some of the member banks, such as Barclays, have already been experimenting with ways to use the Bitcoin blockchain. And Goldman Sachs joined in a $50 million venture capital investment in Bitcoin startup Circle back in May.
Meanwhile, venture capital continues to pour into Bitcoin - $405 million so far this year, already well ahead of the $361.5 million invested in 2014.
"A year ago, [Bitcoin] was more of an idea," Max Neukirchen, the head of corporate strategy at JPMorgan Chase, recently told The New York Times. "Now, it is a real opportunity. You test it and realize that this can play a big role in our thinking about how our own infrastructure will evolve."
Follow me on Twitter @DavidGZeiler.
A Bitcoin Tug-of-War: When Barclays announced earlier this month that it would allow people to use Bitcoin to make charitable donations, it marked another effort by London to become the world's center for Bitcoin activity. But London isn't the only city trying to win that title...
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.