Blockchain technology holds promise of virtual currency transactions for banks

Blockchain, a technology that has emerged with the promise of reaching far beyond its origins as the backbone of virtual currency Bitcoin, is slowly moving out of the testing lab and into real-world applications.

Financial institutions, including ATB Financial and Canadian Imperial Bank of Commerce, recently teamed up with blockchain pioneer Ripple in separate projects that used the distributed ledger technology to transfer payments internationally to Germany and Australia.

The $1,000 transfer was completed by ATB in about 20 seconds, compared to the two to six business days it usually takes to settle with the counterparty bank and reconcile accounts, the Edmonton-based financial institution said.

Blockchain technology cuts down on the time it takes to settle transactions because its shared ledger system records and processes both sides of a transaction in near real time.

Traditional transactions may seem fast to the person on each end but, for the banks, the physical settlement often takes place hours or even days later.

Blockchain and technology like it also holds the promise of reducing some wait times for bank customers, such as eliminating the days it can take for cheques to clear when a bank is unable to verify the money is there.

“Although we are very much still in the early stages of blockchain adoption, it was highly encouraging to see in a true demonstration the potential it has in transforming cross-border payments, making them almost instantaneous and reducing potential errors,” Curtis Stange, chief strategy and operations officer of ATB Financial, said in a statement.

In an unrelated development, Canada’s central bank has teamed up with a group of banks and a financial technology consortium, R3, along with Payments Canada, to perfect a blockchain prototype that can transfer large amounts of money between banks.

The working prototype, or “toy system” as Bank of Canada deputy governor Carolyn Wilkins calls it, is currently being tested.

“It’s not a full-fledged interbank payment system — it’s a strippeddown experimental prototype, so in that sense it’s a toy system,” Wilkins told the Financial Post in a recent interview.

She said the next step will determine if it’s scalable, adaptable and at least as tamper-proof as established systems that government payments and the transfer of largescale and ongoing movements of money.