2015 was the year that blockchain technology, initially used as the public ledger for tracking bitcoin, began to mature and expand beyond payments. While regulators focused on the risks associated with virtual currency, technology companies and financial institutions forged ahead with developing alternate uses for the blockchain.
Using blockchain technology offers many upsides, with one of the most notable being faster clearing and settlement functionality. Companies that can clear and settle transactions faster and at a reduced cost will have a competitive advantage. Thus far, however, no dominant player has emerged.
There are a number of companies that are working on creating blockchain platforms for financial institutions to use to clear and settle trades. Below are just a few of note:
- Digital Asset Holdings. Blythe Master and team are developing a blockchain platform for financial institutions to use to settle digital currency trades as well as digitized versions of financial assets. Digital Asset Holdings recently purchasedHyperledger, which developed a distributed ledger to allow banks and other financial institutions to clear and settle transactions in real time, and Blockstack, which offers private blockchain services.
- Ethereum. Launched in mid-2015, it offers its own decentralized blockchain platform that allows each blockchain to be customized to fit the specific security that is subject to clearance and settlement.
- Bankchain. Developed by ItBit, it is a ledger system seeking to leverage the blockchain for clearing, settlement, and custody.
- Clearmatics is working with UBS to help develop a digital coin based on blockchain technology to settle trades and make cross-border payments.
- R3CEV has developed a consortium of 42 banks dedicated to developing blockchain technology for settlements and payments, among other things.
- Citigroup is developing various blockchain technologies (at least three) and has created a test virtual currency, “Citicoin,” which it uses to test the blockchain technologies.
In addition, companies are using blockchain technology to issue and trade equities. At the end of 2015, Nasdaq issued shares in Chain.com using Nasdaq Linq, its blockchain ledger technology. Additionally, the SEC approved Overstock.com’s plan to issue company stock via blockchain through its subsidiary, t0.
As the above demonstrates, both technology companies and financial institutions will be focused on developing numerous use cases for blockchain technology beyond payments in 2016. Regulators are also beginning to focus on the blockchain technology itself as opposed to solely virtual currency. For example, the CFTC is holding a hearing on January 26, 2016 to discuss the use of blockchain technology in derivatives markets. Taken together, 2016 seems to be the year that blockchain technology separates itself from payments and begins to stand on its own. Judging by the CFTC’s interest in blockchain technology, it appears that regulators may be thinking the same thing.