Several months ago nine leading banks, including P Morgan, Goldman Sachs and Barclays, partnered with New York-based financial innovation firm R3CEV to deeply study the blockchain. The number of banks-participants grew and now makes up 42. Together they strive to advance commercial apps and set up coherent standards for distributed ledger technology across the fintech industry to stimulate broad adoption and profit from a network effect.
R3 blockchain project did cause disapproval of some bitcoin experts. Patrick Byrne, Overstock’s CEO, expressed his opinion that the project can stifle innovation. “What’s happening is Wall Street is trying to slow us down while they come up with their own version, and that’s, I think, R3,” he said.
“Wall Street comes up with their own version, and then they’re going to outlaw [the competition]. So really be alert for R3.” According to Byrne Wall Street aims at slowing down the Bitcoin revolution by means of R3. The startup is only an “attempt to create a blockchain that could be brought to regulators as a legally-enforced standard”.
However, R3 consortium came into play and eleven major banks have tested a system intended to apply blockchain for making trading much faster and cheaper. They used a Microsoft platform, which runs on a blockchain built by Ethereum, for the test. Each of the 11 banks from four continents used their own computer and transferred “Ether” to each other – Ethereum’s equivalent of bitcoin. The transactions were settled almost instantaneously. To compare, traditionally banks need several days for settlement, depending on the asset class.
Banks involved in the experiment were Barclays, UBS, HSBC, BMO Financial Group, Credit Suisse, Commonwealth Bank of Australia, Natixis, Royal Bank of Scotland, TD Bank, UniCredit and Wells Fargo.
R3 Managing Director Charley Cooper hopes that banks will be able to use blockchain for real assets transfer within the next one or two years. “Rather than just talking about what we might do, we’ve moved into a new phase, which is actually executing these plans and demonstrating how this technology might work in practise,” said Tim Grant, who runs R3’s test labs. The success of the test means a huge step forward in adopting the blockchain technology.
R3 blockchain project aims at the development of private “permissioned” blockchain. Cooper recalls several stories when banking consortiums have managed to improve the banking experience together, such as Markit, Tradeweb, FXall and E Speed Broker Tech.
In an interview with American Banker, he explained that R3 is developing a technology to custom fit the needs of the banking consortium, rather than many financial technology companies that are building software before showing banks, only to find their model doesn’t comply with regulations.
R3 consortium can be criticized but it holds its ground that blockchain is that very technology that is able to transform financial services sector.