Goldman Sachs wants to put FX trades on the blockchain Goldman Sachs wants to put FX trades on the blockchain
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WHY THIS MATTERS IN BRIEF Using a blockchain will allow Goldman to settle FX trades in real time, without the need for expensive intermediaries... Goldman Sachs wants to put FX trades on the blockchain

WHY THIS MATTERS IN BRIEF

  • Using a blockchain will allow Goldman to settle FX trades in real time, without the need for expensive intermediaries and without compromising compliance, integrity or security


 

Trading currencies is costly and slow for traders at major financial institutions – transactions need to go through a bunch of middle men, each of which take a slight fee. Now a new patent application from Goldman Sachs hints at how the blockchain technology behind Bitcoin could revolutionize that process.

 

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The patent application, published by the US Patent and Trademark Office (USPTO) was originally filed in March 2015. It outlines a distributed ledger – essentially an accounting ledger shared by a number of different parties, also known as a blockchain – that can process financial transactions in the Foreign Exchange (FOREX) market. It’s Goldman Sachs’ first blockchain related patent.

The $5.1 Trillion a day FOREX markets are risky – a party sends their funds to an intermediary, like the CLS Group, a foreign exchange settlement service, who hold onto the first party’s funds while they’re waiting on the counterparty on the trade to provide their funds. The problem? The first party’s capital gets tied up in that specific trade until it’s settled, which can take up to a day or two. That makes trading in FOREX markets a slow process, then add into that the fact that you can only trade 24*5 rather than 24*7 and it gets even slower. The hope is that blockchain could provide real time transactions to speed up the FOREX market.

Banks have been experimenting with blockchain technology to make transactions faster and cheaper for the past year or so, but most projects are still nascent. There are some fairly robust systems, like Bitcoin and Ripple, a blockchain startup; Bitcoin processes over 180,000 transactions a day, and banks like UBS and Santander have been partnering with Ripple. But those systems have their drawbacks, according to the Goldman patent filing, especially in the highly regulated industry of financial services.

 

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“These systems suffer from significant disadvantages in terms of privacy,” according to the patent, because anyone can see any transactions made on the Bitcoin blockchain.

If a bank blockchain was fully transparent, it would allow competitors to place opposing trades against a certain transaction and greatly reduce the competitive nature of foreign exchange trading. Bitcoin and Ripple also “lack designed-in identity checks that aid regulators with policing anti-money laundering,” the patent says.

Essentially, Goldman wants to merge the benefits of blockchains speed and efficiency with other technologies that offer privacy, security, and compliance with regulatory guidelines. For example, Goldman’s version of the blockchain would allow for private transactions only visible on a need to know basis; permit regulators to access the database; and adhere to Anti Money Laundering (AML) regulation and Know Your Customer (KYC) laws, which require that banks confirm the identity of their customers.

 

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As blockchain technology begin to permeate Wall Street, banks have begun collecting intellectual property over its potential uses. Bank of America has been filing for patents for quite some time and now has approximately 50 blockchain related patents in its pipeline, but of course, just because companies file for patents doesn’t necessarily mean they’re using them now or in the future – and the USPTO can still deny any of these applications.

Matthew Griffin Global Futurist 未来学家, Tech Evangelist, XPrize Mentor ● Int'l Keynote Speaker ● Disruption, Futures and Innovation expert

Matthew Griffin, Futurist and Founder of the 311 Institute is described as “The Adviser behind the Advisers.” Among other things Matthew keeps busy helping the world’s largest smartphone manufacturers ideate the next five generations of smartphones, and what comes beyond, the world’s largest chip makers envision the next twenty years of intelligent machines, and is helping Europe’s largest energy companies re-invent energy generation, transmission and retail. Recognised in 2013, 2015 and 2016 as one of Europe’s foremost futurists, innovation and strategy experts Matthew is an award winning author, entrepreneur and international speaker who has been featured on the BBC, Discovery and other outlets. Working hand in hand with accelerators, investors, governments, multi-nationals and regulators around the world Matthew helps them envision the future and helps them transform their industries, products and go to market strategies, and shows them how the combination of new, democratised, powerful emerging technologies are helping accelerate cultural, industrial and societal change. Matthew’s clients include Accenture, Bain & Co, Bank of America, Blackrock, Booz Allen Hamilton, Boston Consulting Group, Dell EMC, Dentons, Deutsche Bank, Deloitte, Deutsche Bank, Du Pont, E&Y, Fidelity, Goldman Sachs, HPE, Huawei, JP Morgan Chase, KPMG, Lloyds Banking Group, McKinsey & Co, PWC, Qualcomm, Rolls Royce, SAP, Samsung, Schroeder’s, Sequoia Capital, Sopra Steria, UBS, the UK’s HM Treasury, the USAF and many others.

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