Tech Transformers

Why bitcoin’s tech could ‘change everything’ for banks

Big banks say this tech could 'change everything'
Big banks say this tech could 'change everything'

Bitcoin may have risen over 35 percent so far this year, but it's the underlying technology behind the cryptocurrency that is exciting the world's major banks.

Called the blockchain, it has been heralded as a potentially disruptive force in finance by major institutions, which claim that bitcoin is just the "opening act" in something bigger.

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Blockchain works like a huge, decentralized ledger for the digital currency bitcoin which records every transaction and stores this information on a global network so it cannot be tampered with. It's this technology that banks feel can be utilized in areas from remittances to securities exchanges.

Currently, a consortium of more than 25 banks, led by fintech (financial technology) company R3, is developing a framework for applying blockchain technology to markets.

CNBC highlights what some of these major banks have been saying this year about the potential of the blockchain.

Goldman Sachs

"What if I told you that bitcoin was just the opening act … with the blockchain ready to take center stage," Goldman Sachs said in a note in December, adding that the technology could "change everything."

Goldman Sachs noted a number of industries and uses that the blockchain could be applied to including voting systems, vehicle registrations, wire fees, gun checks, trade settlements and cataloguing ownership of art works.

"By removing the need for a middle man, one lowers potential security concerns from hacking to corruption as well as speeding up manual processes that are antiquated and can take too long," the investment bank said.


JPMorgan has spent about $9 billion this year on technology investments across the company and a big focus has been on the blockchain.

In a note to employees, which was given to CNBC, Daniel Pinto, the head of JPMorgan's corporate and investment bank, said the financial giant has established teams to look into the blockchain among other technology such as robotics.


Barclays said in May that bitcoin created a more "elegant solution than our current payment system" in many ways but it also "fell short" in a number of areas. The British bank said that it envisages a number of other cryptocurrencies will continue to emerge that won't have the flaws of first generation bitcoin, it said in the note.

So it's not predicting the end of cryptocurrencies but sees a place for them in the future of blockchain.

The first big area cryptocurrencies could work well in is bank transfers and remittances, according to Barclays, as it could make it cheaper and even "reduce the capital requirements of banks, as it would reduce considerably the counterparty risks."

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A second area of interest is the use of blockchain in securities exchanges with Barclays saying the technology can be "been abstracted to carry any sort of asset which can be represented digitally."

A third area is in the registration of assets to help insurers keep track of objects, for example. An insurer could keep track of claims and if a car breaks down and an insurer pays for the repairs, both events could be recorded on the blockchain, so it would be more difficult to make a second claim.

Other examples Barclays includes is being able to create "tamper-proof" online voting and supply chain management.


UBS has been one of the most open banks about its plans with the blockchain. It has a team called "Crypto 2.0" in London conducting research on the technology.

The Swiss investment bank said it has explored more than 20 use cases of blockchain and is incubating the best ideas.

One of the experiments it carried out was with so-called "smart contracts" which it developed into a "smart bond". This involved using the blockchain to recreate a bond's issuance, interest calculation, coupon payments and maturation processes.

UBS said in this scenario there was no need for pre and post trade intermediaries as the software on the blockchain was specifically configured to automatically handle the flow of information and money between the issuer and the buyer. The test required the creation of a virtual coin which it called "bondcoin", which enabled the transfer of value between the parties. Rather than a new virtual currency, bondcoin is linked to real-world currencies and connected to a central bank account.

Deutsche Bank

In an October issue of Deutsche Bank's Flow magazine, the German institution said it had explored an "innovation lab" to investigate the potential of the blockchain.

Deutsche Bank highlighted that the adoption of the blockchain would face "significant legal and regulatory barriers" but recognized that it could be massively disruptive to banks.

"On one level, this is a wake-up call to the banking industry. Buying and selling across the globe with a cryptocurrency requires no identification, no bank account and no credit card. It pays no foreign exchange fees or banking charges, meaning you could be a bitcoin billionaire without ever having spoken to a bank," the investment bank said.

"It could also, of course, be a threat to investments in Uber and Airbnb – and all fintech start-ups that are essentially intermediaries using banking's payment rails."