When it comes to blockchain, the financial services industry is ahead of the curve.
So far, IBM Corp. has seen more traction in blockchain projects in financial services than any other industry, according to Ramesh Gopinath, vice president of blockchain research at the company. Of IBM's roughly 400 contracts to work on blockchain projects, many have been for financial institutions, he said. Blockchain initiatives began ramping up in early 2016, and while companies were initially interested in proofs of concept, by midyear, there was a clear shift toward deploying products.
The technology, also referred to as a distributed ledger, revolves around increasing trust within business transactions. Since multiple parties vet the transactions that occur on a blockchain, the database is held by all the parties and is not alterable. That means it is practically impossible to tamper with the data, according to Gopinath.
Within financial services, Gopinath sees the most activity in building products for capital markets, "a key area where there are significant interactions between multiple parties," he said.
Gopinath flagged IBM's work with CLS Bank as an example. The bank does almost $5 trillion to $6 trillion worth of daily foreign exchange transactions and is building a solution called CLS Net, he said. CLS Group Holdings AG, which provides risk management and operational services for the global foreign exchange market, announced the payment netting service in September 2016. The distributed ledger platform for CLS Netting uses open-source solutions from the Linux Foundation's Hyperledger Fabric.
The Hyperledger project is a cross-industry blockchain effort with members including IBM, American Express Co. and JPMorgan Chase & Co.
IBM is also working with the Depository Trust & Clearing Corp., which clears around $11 trillion worth of credit derivatives each year. Gopinath pointed to the DTCC's decision to use blockchain technology to re-platform the system it uses to manage the life cycle of credit derivatives.
A distributed ledger could even become the infrastructure for stock trading, a higher-profile component of the capital markets, since the technology could track changes in share ownership automatically.
"I wouldn't be too surprised if equity trading in the U.S. is done on a blockchain five years from now or so," Gopinath said. He noted that blockchain could also eventually be used for mortgage and other real estate transactions that involve more than one party.
Trade finance is another area where blockchain is buzzing, Gopinath said. IBM is working with Luxembourg-based Natixis Bank and commodities trader Trafigura on technology for U.S. crude oil transactions.
Natixis is the international corporate, investment, insurance and financial services arm of French savings bank Groupe BPCE. IBM, commodities trader Trafigura and Natixis' blockchain work centers on U.S. crude oil transactions. Its distributed ledger technology platform is built on the Linux Foundation's open-source Hyperledger Fabric as well.