For a long while, there was plentiful talk about the possibility of major banks incorporating blockchain technology into their infrastructure and practices, but little action. The new year seems to have finally brought some indication, however, that at least some of the global leaders in finance will move toward the technology that has long been affiliated with the digital currency Bitcoin. What are some of the potential implications for those banks as tey look to make these moves, and what can outside investors expect?
DTCC Makes Announcement, Sparks Speculation
In the Wall Street world, the Depository Trust and Clearing Corporation (DTCC) is a major player, but one that tends to participate behind the scenes. Nonetheless, when DTCC representatives announced last week that they would replace a central database with new technology modeled after Bitcoin, it was enough to shake the industry. The DTCC charts and reports most trades of stocks and bonds that occur in the U.S., and many derivatives trades as well. DTCC indicated that IBM (IBM) would head up the project; the computer company has recently been working hard to make strides into blockchain technology.
Move is Revealing About Wall Street Opinions
What the DTCC announcement reveals is less about Bitcoin itself and more about the technology that undergirds and supports it. Wall Street leaders have shown interest in Bitcoin since it first appeared on the scene, but less so for the currency itself and more because of the blockchain advances that allowed for newer and, potentially, better ways of completing and recording transactions across a broad array of financial areas. The key to blockchain technology is that it is able to complete these tasks without reporting to a central authority, instead utilizing a network of many thousands of computers scattered across the globe.
What are the implications of a shift toward blockchain for Wall Street? One of the major potential benefits of blockchain as a means of recording financial transactions is that it could be much faster than the current practice, which requires central authorities to validate and document each item in the ledger. At the same time, without a single central hub in control of the documentation and databases, hacking into the blockchain is much more difficult than the current practice.
Will banks suddenly be incorporating Bitcoin? Probably not. The new project by the DTCC is not using the same blockchain as Bitcoin, but rather building a similar tool for a number of different financial institutions with which it works. This ledger will not be publicly available, unlike the Bitcoin blockchain. For now, the DTCC will use this technology for the sole purpose of recording transactions. However, if it proves successful, the next step may include facilitating and executing transactions as well.