It’s a strange time for blockchain to be having a moment of normality. Most associated with crypto currencies, it has understandably been a challenging time for its other use cases, including the conventional financial ones.
Bitcoin had a price of more than €100,000 as recently as October, yet has lost almost half that value in the months since. Pump-and-dump scams involving other crypto currencies have drawn public ire over the past two years.
There’s even a feature-length documentary, directed by The OC and Gotham actor Ben McKenzie, coming soon about the assorted issues with crypto.
None of the warnings about crypto are particularly new, but all the while there have been advocates for the underlying technology, arguing that blockchain is more than crypto.
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Last month saw a real step in the normalisation of blockchain’s uses outside of crypto. Citi, the big US bank with operations all over the world, conducted the first transfer of regular euro currency over a blockchain.
The process was run out of Dublin, and the bank isn’t trying to reinvent money with the approach; instead it is seeking to find real-world solutions to actual banking problems, and has found blockchain technology useful in that regard.
“We help our clients manage their liquidity around their network using our network,” says Stephen Randall, global head of liquidity management services at Citi. “They have a series of bank accounts in a series of currencies. We help them ensure they are able to move their liquidity across those accounts when they need to.
“We want to help our clients mobilise that liquidity, moving it to where they need it when they need it. Rather than having pockets of cash sitting around their network, we are allowing clients to optimise what they have. By helping them move their money around more efficiently, they can reduce the overall levels of liquidity and cash that they hold.”
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This can provide substantial help to treasury teams as their issue isn’t usually a lack of cash but rather where the cash is.
Citi’s blockchain-based euro transaction was designed to run along the same lines as normal activity, just faster.
“The transaction was an extension of our ability to help our clients move their money. We used our privately permissioned blockchain that allows clients to move money on a near instant basis across our network,” says Randall.
“This transaction was in euro, with a client that wanted to move euro balances from one account to another on a near real-time basis. We’ve had this facility available in dollars for a number of years.”
The minimum amount of time saved on such a matter is at least a day. It can often be far more.
“The amount of time saved can vary. Depending on the client’s processes, if they need to preposition liquidity they may position it on a Friday for a Monday. Now they can execute it on the Monday itself,” says Randall.
“Our clients are under two sorts of challenges. They’re trying to drive efficiency and also manage their cash. We’re trying to allow the clients to be able to manage their liquidity in a more automated and optimised way.”
Crucially, the experience on the customer side doesn’t require an understanding of any new or complicated technology.
“The new technology allows these processes to be done 24/7 in near real-time and not dependent on working around holidays and weekends. From the customer perspective – how they access it – there’s no difference at all,” says Peter Jameson, Citi Europe head of services.
“It enables them to move into this model all using the platforms and capabilities that we’ve been delivering to them for many years.”
The speed difference goes beyond just not having to wait for those working in corporate treasury roles. It can change the way they approach liquidity.
“It makes matters move from being reactive to being more proactive so thresholds can be set up and money becomes more programmable. It unlocks value because rather than having different pools of liquidity sitting around, you can move it in a way that reduces borrowing or funding requirements. It allows the treasury function to facilitate these flows,” says Randall.
“If you’ve got an account sitting in Australia that has payments going out but your header account is in the UK, you can programme it so that if the account drops to a certain balance it gets funded. You don’t have to have someone practically watching that account; you can programme it to happen.”
Ireland being the place where the first euro transaction over a blockchain took place was no accident.
“In Europe, Ireland is very much our headquarters and we have a major solutions centre here. That gives us a diverse team across product, operations, innovation, cyber risk and legal. It was a logical place for us to develop this concept,” says Jameson.
“In Ireland we have multinational global clients. They’re enthusiastic about efficiency and global optimisation.”
Citi is working alongside its clients to build out the technology. It’s an old-fashioned approach of listening to customers to find the best ways to help them with new tech.
“We are co-creating it with our clients. As we talk to clients, we ask them about the challenges they face and how we can help them. We work with our clients to make sure that what we’re developing actually solves their problems,” says Randall.
That co-creation model is extending far beyond finance. Blockchain Ireland, an industry representative body focused on the wider uses of blockchain technology, has members covering areas as diverse as real estate, legal firms and cybersecurity.
If you can do something faster, simpler, cheaper, at scale, that’s more accessible and interoperable, that’s always a good thing. That doesn’t matter if it’s a €10 payment from one person to another or a €100 billion settlement for an international transaction
— Paul Hearns
“Blockchain is being adopted in areas such as logistics, supply chain assurance and, in recent years, in areas such as land registry and commercial real estate,” says Paul Hearns, executive director of Blockchain Ireland.
“Brazil never had a centralised land registry. Rather than trying to centralise it, Brazil has moved to a blockchain-based system, which gives a much easier way of bringing all the disparate information sources together.”
There have been experiments with similar approaches in Sweden, Portugal, and Spain. Hearns says that more sectors are recognising that blockchain isn’t just crypto.
“Blockchain can provide utility outside of cryptocurrency because of its distributed nature, its immutability, but also its security and transparency for users,” he says.
At its core, the reason blockchain is managing to break through beyond crypto is because of its functionality.
“It’s the old familiar themes. If you can do something faster, simpler, cheaper, at scale, that’s more accessible and interoperable, that’s always a good thing. That doesn’t matter if it’s a €10 payment from one person to another or a €100 billion settlement for an international transaction,” says Hearns.
“That payment sitting doing nothing for three days can have significant consequences. If you can tokenise something, if it can be processed through a system digitally, there are huge benefits to that. Conferring those characteristics on those international systems, that gives a huge amount of reassurance and utility. Things can be done faster.”
Strangely, the most likely way we’ll know if blockchain technology has managed to succeed despite all the drama around crypto is if we stop talking about it.
“It is becoming embedded. Think about the waves in technology. We don’t talk about virtualisation any more; instead we talk about cloud computing. Virtualisation enabled the cloud,” says Hearns.
“Blockchain as a technology will disappear into the background. It’s just going to be an assumed layer in a technology stack. It will be a tool in a toolbox to allow organisations to deliver next-generation services.”
