In the domain of digital currencies and big financial institutions, JPMorgan recently created a lot of waves. Its plan to make a cryptocurrency that is backed by a bank is one of the most interesting recent developments in this field. However, it is worth noting that other big financial institution already tested a token. Its purpose was to connect different global payment platform way back in 2015.
This project was dubbed Citicoin and it was spearheaded by Citigroup and its innovation lab in Dublin. Almost five years ago, this project was well beyond what the ordinary financial institution envisioned for themselves in the crypto environment. In fact, many back then doubted that the cryptocurrency scene will last more than a couple of years before it crashes upon itself.
The same project is still relevant, even though the bank never officially announced it, not even as a simple proof of concept. Yet, in the light of the JP Morgan initiative, it would be well worth to remember the lessons of the past even if they seem irrelevant.
Citicoin and its Purpose
The basic notion behind the Citicoin was to provide a streamlining of the global payment processes. Because of that, it has some clear parallels with the thing that JPM coin is trying to accomplish as well. But, four years ago, the project, which took a lot of flack from the bitcoin community, decided that there are other more efficient and effective ways to improve the payment system.
It did, however, note that the cryptocurrency backbone, the blockchain technology, does live to its promised potential. Gulru Atak, who is the Citi’s global head of innovation for treasury and trade solutions, stated that the experiment provided much valuable information. However, the issue ended up being that applied potential was inadequate.
World of Today, not Tomorrow
Among these is the idea that innovation should take place in the existing ecosystem. Here, fintech should be applied inside of the regulatory framework and other mechanisms, like the world-wide SWIFT. Atak also said that any improvements to the cross-border payments have to include a short-term impact that the banks can actually use.
This is why she and others like her working in the traditional banking and financial systems do not desire to primarily see future technology slowly being developed, but something that can make a positive change today. Based on the data this experiment collected, the bank decided to make some changes in the existing system, but not through complimenting it with completely new and untested technology. An additional issue is that bitcoin, for example, like esports and other digital-only technologies, can be a closed one-only system.
The banking system, in contrast, is nothing of the sorts. It is interconnected not just between banks but also nations, all for the purpose of having a synchronized means of monetary transfers. This means that an improvement that utilizes the blockchain tech would have to work in such a way that it connects with other banks who use another blockchain that can talk with the first one.
Getting to that technological consensus would be a nightmarish task. Like Atak points out, a huge majority of the world’s banks already use SWIFT for the same purpose. Yet, this system took years to get to that position. With origins going back to 1973, the magnitude of this task is clear, even in today’s connected world.
Atak explains that Citi’s blockchain strategy slowly moved in the previous years from trying to use the tech as a silver bullet to finding ways to integrate it into legacy systems. CitiConnect is a partnership with Nasdaq that was designed to streamline the process of payments related to private securities.
Atak believes that this project potentially has more similarities with the JMP coin than their blockchain currency development from 2015. CitiConnect does not issue any form of stablecoin but its infrastructure is similar to that of a coin-churning blockchain. Yet, its end goal was to provide a means of processing regularly legacy payments in real time.
Like the CitiConnect example shows, Citi has not given up on the blockchain tech for good. Instead, Atak points out that the company is working hard on finding ways to use blockchain tech, especially when it comes to trade finance. This domain is more realistic for actual applicable uses because building that ecosystem does not ask for many banks like a cross-border payment setup.
Here, the company and its research division is hard at work but also hesitant about making huge announcements because they easily backfire. Even now, with all of the explanations related to the Citicoin, many still see it as a big flop for the entire system. Thanks to this it is no wonder that Atak and the rest of her team are not really eager to get into the public limelight and see how the attention becomes their problem.
HSBC, like JPMorgan, is not reserved about its explanation projects. In January 2019 it revealed that it has settled $250 billion on foreign exchange (FX) through the use of blockchain. Citi’s Innovation lab recognizes that there are many potential places where the blockchain tech can be successfully used.
But, as with the issue of global payments, the dilemma should an organization apply a blockchain or not boils down to its building and handling of the ecosystem where it would operate. If the costs outweigh the benefits, the same organization would definitely deem it is smarter to hang back.
Banks and Crypto
The connection between the big traditional financial institutions and blockchain is clearly a growing one, even with all of the setbacks. Still, the banks will protect their bottom line, as any business venture would. Here, the logic states that cost is purposeful as long as it eventually leads to a bigger return. Right now, blockchain does not have that.
Yet, it is necessary to recognize that people will continue to see a new financial solution as they did through history, even when they are not clearly comprehensible at a particular point. At the present time, there is no bigger candidate for that development process than the blockchain tech.