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March 4, 2016updated 05 Sep 2016 7:44am

Barclays, HSBC & JP Morgan among 40 major banks trialling blockchain in cloud tests

News: IBM, AWS and Microsoft Azure clouds used to test the technology.

By James Nunns

Forty of the world’s major banks have completed a series of cloud-based tests on different blockchain technologies.

The banks, which included the likes of HSBC, the Royal Bank of Scotland and Barclays, tested five different technologies in order to see if the distributed ledger software technology that underpins blockchain can be used commercially in global financial markets.

Undertaken with the help of the blockchain standards start-up R3 CEV, the trial represented the trading of income assets between the global banks.

The technologies tested were ones built by Chain, Eris Industries, Ethereum, IBM and Intel and sought to evaluate the strengths and weaknesses of each technology. This was done by running smart contracts that were programmed to facilitate issuance, secondary trading and redemption of commercial paper.

Smart contracts are computer protocols that facilitate, verify, or enforce the negotiation or performance of a contract.

The cloud computing resources were provided by some of the largest cloud players including Microsoft Azure, IBM and Amazon Web Services.

Collaboration between the banks is seen as vital to understanding the various technologies and seeing insights into how smart contracts will work on a distributed ledger.

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Tim Grant, MD and Global Head of R3’s Collaborative Lab, said: "With the completion of this trial we have raised the bar significantly with the sheer number of global financial institutions, distributed ledger technologies and cloud providers working together in parallel to demonstrate how this nascent technology can be applied to real-world financial markets processes by deploying smart contracts on an actively traded asset class."

What this trial could potentially achieve is the acceleration of the adoption of blockchain technology by demonstrating a use case.

The smart contract capability that was used in the trial would allow developers to encode any "rules" that the blockchain will enforce. This means that it could allow anything from a simple asset issuance to a highly complex financial derivative to be implemented on the platform, said Vitalik Buterin, Ethereum Founder.

Due to increased pressure from challenger banks, the traditional players are being forced to reinvent themselves and adopt new technologies in order to hold onto market share.

A 2015 report by the BBA and Ernst & Young identified that Internet banking services in the UK alone receive around 10 million log-ins per day, this highlights the increasing pressure on banks to efficient ways to modernise their operations and to provide full-featured online services.

Nitin Rakesh, CEO and President of Syntel, said: "Today’s customers are tech savvy and ‘always connected,’ demanding anytime access to banking services. The key is for banks to adapt and digitise their services to give consumers the freedom to manage their finances with secure, seamless and scalable technology platforms."

Although there are challenges related to upgrading core banking systems a digital modernisation would enable banks to integrate the front end applications with the core banking platforms. This would result in a more seamless experience for customers and go some way to meeting the expectations of digitally native consumers.

While banks look at technologies such as blockchain in order to move forward and improve their systems, there is a long way to go until it is accepted as a solution that is scalable and ready for mass adoption.

Other banks involved in the trial included Bank of America, BNY Mellon, Goldman Sachs, JP Morgan and BNP Paribas.

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