Why do banks monopolize blockchain?

Why do banks monopolize blockchain?

Our team of analysts conducted a small investigation on the fintech market and discovered: the blockchain is more likely alive than dead. This fact was supposed to please true cryptophans, to whom we rank ourselves, if not for the piquant details ...

Banks for the blockchain like bees versus honey

With the advent of the blockchain, financial technologies themselves have changed without even wanting to, and even denying the changes. In 2018, the first serious fintech developments began to appear, funded by (guess who) banking corporations. Yes, yes: bees against honey, rockers against drugs, cats against sour cream, and banks for the blockchain. Remember how it all began? At first, bankers with stone faces argued that neither the cryptocurrency nor the technology underlying it was interesting to them, and certainly would not compete with traditional banking (in those days, bitcoin was still small and defenseless). But this “denying strategy” failed with the advent of the wild crypt crypt at the end of 2017. Then the states frantically began to create regulatory bills, and banks furtively began to glance at the blockchain.







In psychology, there are “Five stages of accepting the inevitable”: denial, anger, bargaining, depression, acceptance. So, in 2018, the conservative banking system advanced to the stage of bargaining. And this is not a psychological metaphor: the end of 2018 was marked by an active “purchase” of large fintech startups by large banks and dozens of fintech development patents.

JPMorgan Chase: From Love to Hate - One Patent

In May 2018, the largest US holding JPMorgan Chase patented a blockchain-based peer-to-peer payment network that can be used for intra-bank and inter-bank settlements. The patent application proposes to use a distributed registry to process payments in real time without having to rely on a third party to store a “control” copy of the information [1].

As usual, earlier JPMorgan were extremely negative. In 2017, the head of JPMorgan, Jamie Dimon, left a bunch of unflattering reviews about the culprit of the blockchain celebration, Bitcoin: “Bitcoin is fraud”, “This currency will not work”, “There can be no business where people can invent currency from the air and think, that the people who buy it are really smart. ” Mr. Dimon also threatened to dismiss his employees if he convicted them of using bitcoin [2].

However, later, the head of the holding softened and publicly apologized for rude expressions against Bitcoin. He even hinted that the blockchain technology itself is not so evil and, in general, is attractive to him.

Soon, JPMorgan Chase patented the use of blockchain to regulate transactions between banks, which can significantly reduce the number of intermediaries needed to verify international payments. As for the type of blockchain, the Ethereum code was taken as the basis (JPMorgan created their “add-in") [3].

Meanwhile, proponents of a global conspiracy of bankers whispered that the cunning Mr. Dimon spoke out not at all spontaneously, but purposefully, thus influencing the value of bitcoin. By the way, critical statements by the head of the holding have fallen the price of the main cryptocurrency by as much as 6%. Coincidence?

MasterCard: you can’t suppress a riot - lead it

Like JPMorgan Chase, MasterCard did not approve of crypto-boom. However, according to the iPR Daily as of September 2018, as many as 80 patent applications for blockchain-related patents were received from the payment leader [4].

In the public domain, we were able to detect only a few patent applications. The most interesting are described below:

1. “Method and system for direct anonymous blockchain transactions”.
MasterCard promises to develop its own distributed server with a user base. It is assumed that the profile of each user will contain information for identification, as well as some secret data. At the time of creating a new transaction, the server will issue two hash values: the first is associated with the details of the operation, the second is associated with secret profile data. Only the second value will be sent to the distributed database. This approach will help keep the transaction anonymous.

Personally, of course, I have many questions about the meaning of such a system: users do not own information about each other, but the MasterCard registry stores all the data (not only secret) [5]. Prize for the most anonymous anonymity!

By the way, the Master Card no, no, and it’s “burning” in its true attitude to anonymity. In the summer, the head of the company Ajay Banga during a lecture “New India” stated: “I think cryptocurrencies are rubbish. It seems to me that the anonymized cryptocurrency created by users during the mining process, the value of which is subject to serious fluctuations, is not the best currency that deserves to be called a means of calculation ”[6].

2. “Method and system for distributed blockchains and improved privacy for“ allowed ”blockchains”. Permissioned blockchain is an invention of MasterCard. This is a type of blockchain, thanks to which it is possible to use data from different blockchains on a single platform. At the moment, a universal blockchain has not yet been created that would satisfy all requests. So Master Card decided to invent a certain integrator that allows you to synchronize data of different types of transactions [7], [8].

It seems to us that this decision really deserves attention and there is a chance to see practical cases in 2019.

The media also discussed MasterCard patents for “Method and system of authentication of coupons through the blockchain”, which involves the comparison of customer data and his coupon (for example, promotional) on the equipment of a point of sale using a blockchain to verify payment data; as well as the development of a distributed database that provides tourists with an opportunity to indicate routes, and offer operators a price [9], [10], [11].

IBM: big promises with beautiful infographics.

The IBM team keeps pace with the time actively working on the implementation of the blockchain. Blockchain World Wire is a financial instrument that promises to quickly deal with international payments. The general scheme of his work is as follows:

1. Two financial institutions agree to use a digital asset (stable coin or electronic money) as a bridge between the two types of fiat money.
2. Financial institutions, while continuing to use familiar payment systems, are joining World Wire's APIs to convert their first fiat currency into a digital asset.
3. Then World Wire simultaneously converts the digital asset into a second fiat currency. All transaction details are recorded on the blockchain [12].

* the full version of the infographic can be downloaded on the IBM website

People's Bank of China and Blockchain Schizophrenia

While Americans are becoming more sophisticated about how to use the blockchain, the Chinese government is actively pressing cryptocurrencies, miners and ordinary crypto enthusiasts. Which, however, does not prevent the introduction of technology in the financial and public sectors. Brace yourself, citizens of China.

44 patents in the field of blockchain technologies were filed by the People's Bank of China as of the summer of 2018 [13]. And in the fall, the main bank of the country reported on the creation of Guangdong-Hong Kong-Macao Great Bay Area Trade - a trading and financial platform on the blockchain.

All this looks rather strange against the background of the statement of the Director of the research department of the People’s Bank department Xu Chong, who clearly spoke about the blockchain, calling the technology utopia and fantasy [14].

Alibaba and 90 patents

The Chinese public company Alibaba Group, working in the field of Internet commerce, has long been not breathing evenly for the blockchain. In the summer of 2018, Alibaba reported the registration of 90 patent applications for blockchain development. The creator of Alibaba, Jack Ma, said that the company is going to allocate about $ 14 billion for these purposes [13].

At alibabacloud.com, you can test the BaaS platform for entrepreneurs. Alibaba's BaaS (blockchain as a service) allows you to create an application for any business needs and enjoy the delights of distributed ledger technology. As stated in the description, the platform supports major open source blockchains, such as Hyperledger Fabric and Enterprise Ethereum - Quorum. The platform promises to solve popular problems: proof of product origin, supply chain management, data sharing, protection of property rights.

With regard to practical cases, we did not find solutions implemented on this platform. Although, his other Alibaba project was nevertheless brought to practical implementation. The company's financial department, Ant Financial, has developed a decentralized money transfer system and electronic wallet. The solution was tested during the transfer of funds from the Hong Kong branch of Alipay (Alibaba Group payment system) to the wallet of the Philippine decentralized service GCash [15].

Well and after: Zheshang Bank, one of the largest commercial banks in China, announced the issue of securities in the amount of $ 66 million on its own blockchain platform [16].

The first syndicated loans on the blockchain

Europeans are catching up with the Chinese and Americans: in the spring, the Spanish BBVA Bank issued the world's first loan on the blockchain. A syndicated loan is a loan that is issued to a borrower by at least two lenders as part of a single loan agreement. Ethereum was used as a platform. A little later, BBVA, Japanese bank MUFG and French BNP Paribas issued a syndicated loan of $ 150 million to the Spanish company Red Electrica. This time, a private blockchain was used as a platform [17].

It is reported that thanks to the technology, the process of registering transactions is significantly simplified and cheapened. The truth was not said whether the above agreements were accompanied by traditional paper work.

so

In 2018, banking monopolies demonstrate obvious schizophrenia, on the one hand, depreciating the blockchain, and on the other, investing gigantic sums in fintech developments. This behavior is obviously dictated by the fear of an almost mysteriously emerging technology, and designed to destroy financial intermediaries.

In the subject, I am amused by a user’s commentary from articles on Forklog: The best that banking monopolists can do in this situation is to discredit the blockchain and / or try to use the technology for their own purposes. By the way, financial giants are mainly invested in the so-called private blockchains, which do not imply true decentralization and, in fact, are not blockchains (according to Satoshi Nakomato White Paper).







As for the prospects, in our opinion, there are two ways to develop the blockchain in fintech: the
complete submission of distributed ledger technology to the existing banking monopolies, which actively petition each other; the long struggle of truly anonymous decentralized systems for the right to life.

The result of the second path will be the transformation of world financial and economic systems up to the complete elimination of all existing institutions and even states. But this is a completely different story.


Information about the authors of the article: the team of XEBR analysts worked on the study.