Why do banks monopolize the blockchain?

Why do banks monopolize the blockchain?

Our team of analysts conducted a small investigation on the Fintech market and discovered that the blockchain is more alive than dead. This fact was supposed to rejoice the true cryptophans, to which we classify ourselves, if not for the juicy details ...

Banks for the blockchain like bees against honey

With the advent of the blockchain, financial technologies have changed unwittingly and even denying the changes. In 2018, the first serious fintech-development began to appear, financed (guess who) by banking corporations. Yes, yes: bees against honey, rockers against drugs, seals against sour cream, and banks for the blockchain.



Remember how it all began? At first, stone-faced bankers argued that neither the cryptocurrency nor the technology underlying it was interesting for them and certainly would not compete with traditional banking (at that time Bitcoin was still small and defenseless).

But this “denying strategy” failed with the arrival of the wild pampas of the crypt at the end of 2017. Then the states frantically began to create regulatory bills, and the banks began to peek at the blockchain.

In psychology, there are “Five stages of making the inevitable”: denial, anger, bargaining, depression, acceptance. So, in 2018, the conservative banking system advanced to the bargaining stage. And this is not a psychological metaphor: the end of 2018 is marked by active “buying up” by large banks of cute FINTECH startups and dozens of patents for FINTECH.

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, which can be used for intrabank and interbank settlements. The patent application proposes to use a distributed registry for processing payments in real time without having to rely on a third party to store the “control” copy of information [1].

As usual, earlier JPMorgan were very negatively disposed. In 2017, JPMorgan head Jamie Dimon left a bunch of unflattering comments about the hero of the blockchain celebration, Bitcoin: “Bitcoin is a 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. ” Also, Mr. Daimon threatened his employees with dismissal in case he caught them using Bitcoin [2].

True, the head of the holding later relented and apologized publicly for rude expressions addressed to Bitcoin. He even hinted that the blockchain technology itself is not so evil and, on the whole, sympathetic to it.

Soon JPMorgan Chase patented the use of the blockchain to settle transactions between banks, which allows to significantly reduce the number of intermediaries necessary to verify international payments. As for the type of blockchain, the Ethereum code was taken as a basis (JPMorgan created their own “superstructure”) [3].

In the meantime, supporters of the world bankers' conspiracy were whispering that sly Mr. Dimon did not speak out at all spontaneously, but purposefully, thus influencing the cost of bitcoin. By the way, critical statements by the head of the holding have dropped the price of the main cryptocurrency by as much as 6%. Coincidence?

MasterCard: Can't crush a riot - lead it

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

In public access, 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 the creation of a new transaction, the server will issue two hash values: the first is related to the details of the operation, the second to the secret profile data. Only the second value will be sent to the distributed database. This approach will preserve the anonymity of the transaction.

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

By the way, Master Card no, no, yes, it “burns” in its true attitude to anonymity. In the summer, the head of the company Ajay Banga during the lecture “New India” said: “I think that cryptocurrency is rubbish. It seems to me that anonymized cryptocurrency created by users in the process of mining, the cost of which is subject to serious fluctuations, is not the best currency deserving to be called a means of settlement ”[6].

2. “Method and system for distributed blockchains and enhanced confidentiality for“ allowed ”blockchains” . Permissioned blockchain - MasterCard invention. 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. Here Master Card and decided to invent some kind of 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 as early as 2019.

The media also discussed MasterCard patents on the “Method and system for authentication of coupons via the blockchain”, involving the comparison of customer data and its coupon (for example, promotional); to equip a point of sale using a blockchain to verify billing information; as well as the development of a distributed database, which provides an opportunity for tourists to indicate routes, and operators to bid on [9], [10], [11].

IBM: big promises with beautiful infographics.

The IBM team is moving with the times and is actively working on the blockchain implementation. Blockchain World Wire is a financial tool 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 two types of fiat money.
2. Financial institutions, while continuing to use familiar payment systems, are joining World Wire's APIs to convert the first fiat currency into a digital asset.
3. Then World Wire simultaneously converts a digital asset into a second fiat currency. All transaction details are recorded in the blockchain [12].

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

People's Bank of China and blockchain schizophrenia

While Americans excel in the use of blockchain, the Chinese government is actively pressing cryptocurrencies, miners and ordinary crypto-lovers. What, however, does not interfere on the sly to introduce technology into the financial and public sector. Be brave, 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 country's main bank reported on the creation of the 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 Halyk Bank Office 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 unevenly breathing to the blockchain. In the summer of 2018, Alibaba reported on 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].

On the website 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 charms of distributed registry technology. As stated in the description, the platform supports the main open source blockchains, such as Hyperledger Fabric and Enterprise Ethereum - Quorum. The platform promises to solve popular problems: proof of the origin of the product, supply chain management, data sharing, protection of property rights.

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

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

The first syndicated loans on the blockchain

Europeans are catching up with Chinese and Americans: in spring, Spanish BBVA Bank issued the first blockchain loan in the world. A syndicated loan is a loan that is issued to a borrower by at least two lenders under 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, the private blockchain was used as a platform [17].

It is reported that, thanks to technology, the process of registration of transactions is significantly simplified and cheaper. True, it was not said whether the above agreements were accompanied by traditional paper-based documents.

so

In 2018, the banking monopolies demonstrate obvious schizophrenia on the one hand, by depreciating the blockchain, and on the other, by investing huge sums in fintech development. This behavior is obviously dictated by the fear of an almost mystically arisen technology, and it was designed to destroy financial intermediaries.

In the subject, amused by the user's comment to from the articles in the forklog:



The best thing bank monopolists can do in such a situation is to discredit the blockchain and / or try to use the technology for their own purposes.

By the way, financial giants mainly invest in the so-called private blockchains, which do not imply true decentralization and, in fact, are not blockchains (according to White Paper Satoshi Nakomato).

As for the prospects, in our opinion, there are two ways of development of the blockchain in Fintech:
complete submission of the technology of the distributed registries to the existing banking monopolies, which are actively tearing up the patents from 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 the global financial and economic systems, up to the complete elimination of all existing institutions and even states. But that's another story.


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