With increasing application and popularity of blockchain, companies from various industries are getting onboard to work on the disruptive technology. On Monday, Reuters reported that International Business Machines Corporation (IBM) and CLS, a New York-based financial services company, as well as nine banks including Barclays and Citigroup, are working on a platform to access blockchain-based applications. This could be the world’s first blockchain-based app store.
CLS and IBM have joined hands to develop LedgerConnect, a blockchain or distributed ledger technology (DLT), for financial services firms to allow banks, FinTech and research firms, as well as software vendors to install, share, and use services on a shared private network. The platform will offer services and applications in avenues like collateral management, derivatives post-trade processing, customer compliance checks, reconciliation and market data, and sanctions screening.
“Together IBM and CLS have been early pioneers in advancing blockchain solutions for the financial services space,” IBM Blockchain General Manager, Marie Wieck, said in a press release on Monday.
Blockchain initially emerged as the technology supporting bitcoin. It is a shared ledger of transactions on the Bitcoin network, which is managed by a network of computers instead of a centralized authority and serves as a tamper-proof base. Conversely, banks and other financial institutions have started spending millions of dollars to develop blockchain platforms in order to make their processes, from settling trades to issuing loans, simpler and more efficient.
However, blockchain or DLT implemented by large corporations is different from the Bitcoin network. While DLT is a private blockchain platform, the Bitcoin network is public. There are many companies other than IBM and CLS that are offering DLT products to large corporations. For instance, R3, a distributed database technology startup that works with a consortium of banks, offers blockchain services and products to the financial sector.
There’s an App for That
Some banks have also started developing proprietary blockchain technology. This could potentially be an issue in the financial sector, as experts believe that all these different blockchains may not work with each other. This implies that if a bank uses DLT developed by a firm and its customers use a different blockchain system, the institutions will not be able to transact with each other.
IBM’s latest blockchain platform is hosted on a single network, a one-stop shop for financial services firms to make blockchain applications. It will also be cheaper and easier for firms to use these applications. IBM and CLS believe that LedgerConnect will accelerate the adoption by making blockchain software more accessible for financial institutions.
Ms. Wieck also said, “Building on the success of CLSNet and leveraging the strong relationship CLS has with the world’s leading financial institutions, LedgerConnect is uniquely positioned as a blockchain marketplace for the financial services industry, which will accelerate innovation across the ecosystem with value added services for blockchain networks.”
Although a number of banks are testing blockchain-based software, only a handful have started making them. There are currently nine banks participating in the proof of concept.
Lee Braine, Chief Technology Officer at Barclays, told Reuters that Barcalys is involved in the proof of concept of LedegerConnect in order to understand and experiment a “new network for blockchain applications,” as well as to “test some candidate use cases on that network.”
IBM and CLS said they plan to make LedgerConnect widely available after going through successful proof of concept and regulatory approvals and creating sufficient market demand. It would be too time-consuming and expensive for every bank to build and test software individually, they added.
While there are many benefits of using blockchain, critics are skeptical regarding the wide-scale adoption of the technology. Also, they are unsure how different DLTs being tested by various financial institutions will be implemented across industries.