Big week in blockchain tech. Simultaneous to our coverage that Swiss-based banking giant UBS appears to be building a smart bonds platform using Ethereum technology, it was revealed that Bank of America Corp, HSBC, and R3 have succeeded in developing a way to significantly reduce international trade costs.
R3, R3CEV LLC formally, is a blockchain technology company. It leads a consortium of 45 major member organizations in R&D and implementation of blockchain tech.
Several months ago, R3 released an in-depth report evaluating how the Ethereum blockchain could be integrated by large banks to reduce friction and costs.
This week it will probably become obvious that quite a few people read that report, and were intrigued.
As Reuters reported yesterday:
“An HSBC and Bank of America Merrill Lynch venture and financial technology firm R3 said separately on Wednesday that they had created ways of using blockchain technology to simplify trade finance processes.
The two banks said they had joined with the Infocomm Development Authority of Singapore to emulate a letter of credit (LOC) transaction. Letters of credit are one of the most widely used ways to reduce risk between importers and exporters, helping guarantee more than $2 trillion worth of transactions, but the process creates a large paper trail and is time consuming.”
Credit, of course, is one of the most fundamental aspects of finance – it underpins much of how humans interact with money. If blockchain can bring greater speed and autonomy to that process, it could be a big deal. But speaking of speed…
ETHEREUM’S “RAIDEN NETWORK” EMERGES
The Raiden Network has many Ethereum watchers excited this week as well, bank news aside. Raiden’s system will allow for ultra-fast asset transfers within Ethereum. The system “scales linearly with the number of participants (1,000,000+ transfers per second possible)” according to its web site.
International Business Times‘ Ian Allison reported on the breakthrough in greater detail, which takes a page from Bitcoin’s Lightning Network:
Ethereum’s version of Lightning, called Raiden, just finished its first proof of concept which involved sending tokens from a Raiden client in Copenhagen to one in Mumbai mediated by a node in Florianopolis. The opening, closing, and settlement of channels took place on the Ethereum testnet, while the actual transfers happened off-chain.
Heiko Hees, CEO of brainbot technologies and creator of Raiden, contests that Ethereum is better suited to Lightning-like payment channels than Bitcoin.
Bitcoin, the world’s largest cryptocurrency by market capitalization, is valued at US $9.43 billion while secondplace cryptocurrency Ether is collectively valued at about US $981 million. The Ethereum network is the most well known smart contracts platform, and uses the Ether token as fuel across its network.
New to the smart contract revolution? Popular crypto academic Nick Szabo gave a great talk at last year’s Ethereum developer conference, explaining in simple terms how cryptocurrency and smart contracts can move markets forward:
Disclosure: At time of publication, I hold some bitcoin, ether, gold, and U.S. dollars in my long term portfolio.