R3 Tests Its Blockchain Network With 11 Leading Banks
Eleven member banks of the R3 consortium, a collaborative group of the world’s largest and most influential banks and financial institutions, including Barclays, BMO Financial Group, Credit Suisse, Commonwealth Bank of Australia, HSBC, Natixis, Royal Bank of Scotland, TD Bank, UBS, UniCredit and Wells Fargo have connected on the centralized Ethereum-based blockchain network.
During the pilot test, banks connected to the R3 blockchain network used the peer-to-peer technology to process and settle international transactions within the network.
“As we progress our evaluations of shared ledgers and smart contracts, we look forward to leveraging R3’s lab environment for collaborative technology experiments. Ethereum is a well-known open source technology in this space and we also look forward to collaborative experiments using other technologies,” stated Barclays Investment Bank CTO Brad Novak.
Unlike Bitcoin however, the unique blockchain network of R3 offers tokenized assets as the unified store of value, enabling banks to implement its existing fiat-based banking processes onto the network.
Using the Ethereum technology, banks will also attempt to process the transfer of assets and shares without cost across the banking systems of the connected banks.
“The transition from vision and hypothesis to application and execution signifies the next major step towards using this technology to transform how institutions interact, report and trade with each other in financial markets,” Novak said.
“This is a very exciting development, both for R3 and our member banks, as well as the global financial services industry as a whole,”said R3 CEO David Rutter.
One key limitation of the R3 blockchain network is its centralization. The R3 consortium states that the blockchain they have built and are operating is private among banking groups and financial institutions.
The concept of a blockchain network, introduced by Satoshi Nakamoto in 2008, describes a peer-to-peer technological protocol in which users can transact or settle assets to each other, in a trustless environment. However, because the blockchain technology of R3 consortium depends on the technical rules and regulations set by a central authority, the technology of R3 does not qualify as a trustless technology, like the Bitcoin network.
Thus, the development of the R3 blockchain technology defies the concept of a blockchain technology introduced in the Bitcoin white paper drafted by Nakamoto eight years ago.
Additionally, the security of a blockchain network depends on the computing power that is being contributed to secure and confirm transactions. The Bitcoin network for example, is considered to be an unbreakable technology because of the magnitude of computing power provided by millions of miners and leading mining firms worldwide.
Since the R3 blockchain network is maintained by its member banks, the “permissioned” blockchain technology of the consortium has substantially lower security levels and consumer benefit.
Despite the limitations of the technology, R3 CEO Rutter still believes that its bank-based blockchain network could benefit global financial markets and reduce the costs of banks globally.
“The addition of this new group of banks demonstrates widespread support for innovative distributed ledger solutions across the global financial services community, and we’re delighted to have them on board,” he said. “We have placed an emphasis on working with the market from day one, and our partners recognize that a collaborative model is the best way to quickly, efficiently and cost-effectively deliver these new technologies to global financial markets.”
Currently, only 11 banks have joined the network designed by the R3 consortium. Over the next few months, more financial institutions in the consortium could potentially embrace the technology and integrate it to their existing financial systems.
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