While incumbents of the world of traditional finance have been quick to cast aside Bitcoin, they’re not expressing the same sentiment towards blockchain.
In fact, banks, prominent investors — Bitcoin skeptic Warren Buffett included — have embraced blockchain, co-opting the technology as a way they can improve the speed, cost, and security of transactions and other banking processes.
Hongkong and Shanghai Banking Corporation (HSBC), one of the world’s largest banks, recently confirmed that it is looking to use a blockchain application to manage assets worth billions of dollars.
Sure, this isn’t a boon for Bitcoin (it shouldn’t be, anyway), though it will be a boon for the blockchain lovers.
HSBC Delves Into Blockchain
According to a report published Wednesday by Reuters, HSBC will be using a blockchain-based custody platform dubbed “Digital Vault” to manage $20 billion worth of assets in “one of the biggest deployments yet of the widely-hyped but still unproven technology by a global bank.” HSBC representatives said that the company intends to have this done by March.
This new HSBC platform will effectively bring formerly paper-based records of private placement investments onto a blockchain, reducing the “time it takes investors to make checks or queries on holdings.”
This is purportedly a pressing solution as private placement-related assets are purportedly hard to access due to the lack of standardization and the fact that they’re mostly backed by physical records.
The $20 billion that will be migrated to Digital Vault represents around 40% of HSBC’s private placement assets.
HSBC didn’t touch on the time and cost savings that could be had with the adoption of Digital Vault, though an analyst of the industry isn’t all too convinced. Windsor Holden, a consultant for blockchain and cryptocurrencies, said:
“I wouldn’t expect to see huge savings, or huge efficiencies announced in the first year to 18 months.”
Regardless, this isn’t HSBC’s first foray into blockchain. Earlier this year in September, the bank completed the first “yuan-denominated blockchain-based letter of credit transaction” through a platform developed in collaboration with eight banks, such as BNP Paribas and Standard Chartered.
Also, early this year, the institution revealed that it had settled $250 billion worth of foreign exchange trades using blockchain technologies in 2018 through a platform known as “FX Everywhere.”
Ethereum, Not Private Blockchain?
While HSBC, JP Morgan (for its JPM Coin) and other banks are using private blockchains, some are testing more public networks. One such institution is Banco Santander, a Spanish bank that is the world’s 16th largest banking institution.
Santander earlier this year completed the first “end-to-end blockchain band” transaction using Ethereum — yes, the Ethereum that is currently the second-largest network on CoinMarketCap.
As reported by Blockonomi on the matter, this meant that Santander using only Ethereum and ERC-20 tokens to settle a $20 million debt issuance, seemingly a world-first. Santander has also been making use of Ripple’s xCurrent solution, a global real-time gross settlement system, for a payments solution called “One Pay FX” that allows customers to, from a top-down level, “complete international transfers on the same day in many cases or by the next day.”
It isn’t clear if there are higher cost savings in using Ethereum/other public blockchain networks that allow for smart contract settlement or private blockchains, though we should soon get our answer if banks continue to test out the two classes of networks.