Financial technology firm R3 has revealed a blockchain-based system for cross-border payments.
The firm, along with 22 of its member banks, will release the beta version before the end of this year. The new system will run on Corda, R3’s smart contract-based platform, and has been specifically designed to interact with central banking systems’ digital currencies as they are created. R3’s project is well-suited specifically for this purpose because it has been designed to create a ledger representing various fiat currencies.
R3’s Project Specifically Designed for Big Bank Integration
At this moment in time, there are many players in the world of cryptocurrency who are bidding to be the go-to platform in cross-border payments and remittances, including OmiseGO and the UBS-driven Utility Settlement Coin initiative.
Unlike the Utility Settlement Coin or OmiseGO, R3’s plans would allow the new system to be more easily adopted by banks that choose to offer their own digital currencies. Indeed, there has been widespread discussion regarding the issue of digital currencies among many of the world’s largest government and financial institutions, including the Russian government, the United States Federal Reserve, and the European Central Bank.
Despite the promise that DLT shows in the fintech world, the world’s major banks have been too wary of the technology’s newness to embrace it. Just last week, the Germany-based bank Berenberg released a report saying that blockchain was an “overhyped technology” with very little hard evidence of real-world success. If R3 can manage to successfully integrate its new system into the banks involved in the project, it may be able to prove them wrong.
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How Can Blockchain Improve Existing Financial Systems?
There is certainly a global need for a more efficient means of making international payments. Currently, it is an expensive and time-consuming process that slows down global trade and costs businesses millions. Additionally, those sending international payments must rely on the security of the centralized, third-party institutions that are capable of making these payments; centralized systems can make it easier for hackers to gain widespread access to personal data.
DLT is a decentralized database that automatically self-updates and self-verifies transactions in real time. It can instantly process and confirm transactions using a set of algorithms, eliminating the need for a third party to sign off on payments to make them official.
Additionally, because the system is supported by a network of computers, it is extremely stable and secure – more than half of the network’s computers would need to be compromised in order to make data vulnerable. Because DLT networks usually consist of hundreds or even thousands of computers, this is virtually impossible.
Banks involved in the project seem to be enthusiastic about its future. Frederic Dalibard, Head of Digital for Corporate and Investment Banking at Natixis, has said that “Natixis believes in the potential of distributed ledger technology for cross-border payments and is exploring several initiatives in that space.”
Investors around the world are also catching the crypto bug, but may be wary of the largely untested nature of DLT-based systems. R3’s initiative may just be the secure, well-built, well-supported project that they have been waiting for.