Banks have been investigating blockchain for some time now, with many testing the technology that underpins the bitcoin cryptocurrency either within their organisation or with startups. See also: what is Blockchain?
But the announcement yesterday that some of the world’s leading banks will work together to create a standardised platform could be a significant step towards wider adoption in the banking sector. (Read next: Why banks are betting on the blockchain - not bitcoin - to transform the financial sector)
The project – led by New York-based startup R3 CEV – involves the nine banks working together to "design and deliver" the distributed or shared ledger technology in financial markets. R3 said the initiative will “seek to establish consistent standards and protocols for this emerging technology across the financial industry" so as to "facilitate broader adoption and gain a network effect".
The banks signed up to establish standards for use of blockchain are some of the biggest and most well-known in the world: Barclays, BBVA, Commonwealth Bank of Australia, Credit Suisse, JP Morgan, State Street, Royal Bank of Scotland and UBS.
They are just some of the banks have been evaluating the technology for at least a year now, with regulators also backing the use of the technology. (Read next: Bitcoin and beyond: Which banks are investing in the blockchain?)
What is interesting about this latest endeavour is that the banks will now work collaboratively to find use cases and start to deploy the technology - the first time banks have publically agreed to do so.
There are a variety of use cases for the blockchain. As the peer-to-peer technology underpinning bitcoin payments, it allows a digital system of record to be updated almost instantaneously. This has clear potential for banking services such as settlement and a back office processes, and could eventually save the banking sector "billions" of dollars each year, it is claimed.
But while interest in the blockchain has been growing, the work done by banks has been at the experimentation stage. The next step will be to make this work on a larger scale and one of the challenges banks face around the blockchain is that there is often little consensus around what the best approach to the fast evolving technology is.
The R3 project hopes to change this by focusing on the creation of "enterprise-scale shared ledger solutions" that can meet banking requirements for security, reliability and scalability.
Wide-spread use of blockchain databases in production by banks could still at least a year or two, and many are still looking at what the possibilties of the technology are and how they can reap the biggest benefits.
One challenge will be to what degree the banks participating are willing to share technologies developed internally that could be seens as a competitive advantage.
But, if the collaboration between banks pays off then it increase the likelihood that the blockchain could well be the lasting legacy of bitcoin.