Eleven big banks test blockchain-based trading system

By Jemima Kelly

LONDON, Jan 20 (Reuters) - Eleven major banks, includingBarclays, UBS and HSBC, said onWednesday they had tested a system that could make trading muchfaster and cheaper, using the technology that underpinscrypto-currency bitcoin.

The banks are part of a consortium of 42 major lenders,brought together last year by New York-based software company R3to work on ways blockchain technology could be used in financialmarkets - the first time so many have collaborated on using suchsystems.

A blockchain is a huge, decentralised ledger of everybitcoin transaction, verified and shared by a global computernetwork, that can also be used to secure and validate anyexchange of data, including real assets, such as commodities orcurrencies.

Banks reckon the technology could save them money by cuttingout middlemen and making their operations more transparent. Butanalysts caution it is early days - bitcoin was invented justsix years ago and blockchain experiments are still under way.

For this test, R3 used a Microsoft platform, which runs on ablockchain built by distributed ledger company Ethereum.

The 11 banks in the simulation, operating across fourcontinents, each used their own computer, or "node", andtransferred "Ether" to each other - Ethereum's equivalent ofbitcoin, R3 said.

They were able to settle the transactions almostinstantaneously, it added. That compares to settlement times ofdays or even weeks, depending on the asset class, under thecurrent systems used by banks.

R3 Managing Director Charley Cooper said the technologycould be used by banks to transfer real assets within the nextone or two years.

"Rather than just talking about what we might do, we'vemoved into a new phase, which is actually executing these plansand demonstrating how this technology might work in practice,"said Tim Grant, who runs R3's test labs.

PEER-TO-PEER

The other eight banks involved in the experiment were BMOFinancial Group, Credit Suisse, Commonwealth Bank of Australia,Natixis, Royal Bank of Scotland, TD Bank, UniCredit and WellsFargo - all members of the R3 consortium.

"Proving the scale and peer-to-peer operation of blockchainexperiments is an important next step," said UBS's seniorinnovation manager Alex Batlin, who is in charge of a blockchainlab for the bank in London.

R3 has recruited many heavyweights from the worlds ofbitcoin and technology more broadly. Mike Hearn, a former leadbitcoin developer who last week said the crypto-currency hadbeen a failed experiment, is its lead platform engineer.

Banks see potential in the so-called "smart contracts" thatblockchain technology facilitates: agreements that areautomatically executed when pre-determined conditions are met.

"Though ... there are still many implementation hurdles leftto overcome, this exercise further validates the utility ofsmart contract consensus technology," a spokesman for Ethereumsaid. (Reporting by Jemima Kelly; Editing by Andtre Heavens)