Ethereum Network crypto, Ether, remained stable last week. However, as of last night the digital currency established an all-time high at $545 — gains of 30%. As of press time, ETH is up 14% and trading at $533. Interestingly, Ether’s gains may be a result of a recent Ethereum blockchain pilot project launched by some of the world’s largest banks. But why would banks champion a technology designed to undermine them?
Ethereum’s blockchain-based “smart contracts,” may steamline banking and introduce a little more transparency to global financial transactions.
The pilot project hopes to revolutionize banking with Massive Autonomous Distribution Reconciliation (Madrec), hatched in London’s fintech hub, Level 39. UBS, with help from Barclays, Credit Suisse, KBC, SIX and Thomson Reuters formed the joint initiative to develop blockchain-based projects.
Madrec aims to simplify the process of reconciling counterparty data. In other words, the Ethereum blockchain would verify that both parties in a transaction are not a credit risk. Now the process requires costly intermediaries — and ultimately higher fees for consumers.
According to a white paper released by UBS:
The blockchain … could enable near real-time settlement models for most types of financial transactions, which could eliminate counterparty risk, free up capital and radically reduce transaction cost. It also allows for split data and service level models in which individuals in effect become the keepers of their own accounts.
MiFID II Regulations
In the face of sweeping regulatory changes called the Markets in Financial Instruments Directive (MiFID) II, which kick in next year, rival banks are working together to improve their processes.
Reference data used by banks is cryptographically concealed at each institution, but the Ethereum smart contracts reconcile the data against the consensus and provide each participant the ability to search and view their own specific data in real-time.
Blockchain allows transactions to happen instantaneously and it records everything on a public ledger. What’s more, this gives banks and regulators powerful tools to see what’s happening at the moment. Not after a bank collapses. Institutions could install “circuit breakers” to “cool off” the system before a meltdown. Watchdogs could do the same with individual institutions in danger of failing, quickly isolating them from the rest of the system to avoid contagion.
UBS claims the initiative will allow banks to work together and ultimately shine a light inside financial institutions. Embracing a technology once designed to make banks redundant may seem counterintuitive, but the industry recognizes the immense benefits of the technology.