Big news in the blockchain world this week as Reuters reports on a new project at HSBC. The banking giant told Reuters that it plans to move billions of dollars worth of assets onto a blockchain system by next March.
According to the Reuters report, the bank will move the assets to a blockchain-based custody platform by its March deadline, in what it calls “one of the biggest deployments yet of the widely-hyped but still unproven technology by a global bank”.
The platform, called Digital Vault, will “give investors real-time access to records of securities bought on private markets”, Reuters says. The “platform will digitise paper-based records of private placements, using blockchain to reduce the time it takes investors to make checks or queries on holdings.
These so-called “private placements” are usually held on paper and are not standardised, making access “tricky and time-consuming”, Reuters says – in what may be somewhat of an understatement. The bank said it currently looks after up to $50 billion worth of the assets.
Blockchain’s big break
As Reuters notes, few firms – financial or otherwise – have yet found a really clear, practical use case for the technology. Banks have spent a lot of money on researching blockchain, which advocates say could disrupt the industry and save money by reducing the requirement for middlemen and paperwork. But so far they have, generally, come up short on game-changing use cases, despite the hype.
Instead, in a development that probably could have been predicted several years ago when the hype cycle around blockchain really began, the use cases have come in smaller and less exciting increments.
The Digital Vault project, for instance, does not instantly deliver transformational change, according to Reuters’ report. HSBC has not been able to say exactly what efficiency and cost savings it will make through the platform, either for itself or clients.
And Windsor Holden, an independent consultant who tracks blockchain and cryptocurrencies, told Reuters major savings were unlikely in the initial stages of projects such as the custody platform.
“I wouldn’t expect to see huge savings, or huge efficiencies announced in the first year to 18 months,” he said.
Boom and bust
But it is, of course, progress. This blog has discussed the trends and cycles around how big incumbent businesses, and especially banks, deal with new technologies. Fintech partnerships, for instance, are an important way for banks to access new and disruptive technologies, while lending the startup companies money, resources and credibility.
The same applies specifically to blockchain. The debate around the usefulness of the technology still rages on, and probably will for years longer, but uses like this at banks – even if the banks can’t immediately see massive efficiency savings – do mean a lot. It means that companies like HSBC, which have huge compliance departments, believe that the tech is safe to use, and can offer some sort of use case.
And in January this year, HSBC announced it had settled more than $250 billion in transactions using distributed ledger technology. HSBC has bookended the year with blockchain usage, then – 2020 surely promises more of the same.