Nine of the world's biggest banks (JP Morgan, State Street, UBS, Royal Bank of Scotland, Credit Suisse, BBVA and Commonwealth Bank of Australia) are working on a blockchain solution to reduce inefficiencies in asset exchange. Bitcoin currently provides the largest blockchain on which asset exchanges can be encoded via BTC transactions.
There are reasons why these banks might opt to use the bitcoin network. Bitcoin has a large first-mover advantage and has global scale network effects. It is by far the most popular blockchain in terms of use and development. As BTC is currently the cryptocurrency token with the highest value, the bitcoin blockchain is secured by a large amount of computing power, as miners are highly incentivized to compete for the privileged to add the next block. Building an asset exchange system atop of bitcoin has the benefit of security. At this moment, it is virtually impossible to out-compete the hashing power of the bitcoin network.
There are also reasons why bitcoin is not ideal for these banks. Bitcoin cannot currently handle more than 7 transactions per second due to a 1MB block size limit, and it is possible to flood the network with small transactions that overtaxes nodes by increasing the mempool and eating up memory. In addition, there remains the possibility that a mining pool could have enough hashing power that they could jeopardize transaction security. Banks also have specific needs which include compliance with financial regulations, and it is likely that a blockchain of their design could better suit them.
Bitcoin is an adaptive technology, and the software continues to be updated. It is likely that limits to its usefulness will be overcome in time. However, to the extent that these limits prevent banks from implementing the solutions they seek, bitcoin represents a less attractive choice. As an example, developer Jeff Garziik recently commented that Fidelity Investments has developed software that they cannot test because the needs are beyond bitcoin's current capacity.
A possible alternative solution for this group of banks would to be to create a non-decentralized blockchain of their own. One of the critiques of such private blockchains is that they would lack bitcoin's security. However, there are solutions to this problem that might be adequate for the banks' needs. One such solution would to be to use a bitcoin-like software, but to license mining. Although this type of network might not offer the same kind of security that bitcoin does, it could represent an improvement on current database-type security, and have the added benefit of future development guided by the banks.
The use case that these banks are seeking, one of a secure open ledger on which to imprint asset exchanges, is not one where bitcoin has the clear advantage.
If bitcoin does not evolve to reduce friction for the use cases these financial services are interested in, it seems likely that bitcoin will not be used by them.
Given that most people are not concerned with, or properly informed about, the advantages of a cryptocurrency token secured by a truly decentralized network, and given that established payment processors will likely be more attracted to a development body which they can lobby by traditional means, it is possible that a token produced by a banking conglomerate could compete with BTC as a digital store of value and popular medium of exchange.
Currently, this is bitcoin's game to lose.
I dunno, man. As far as the world is concerned, BTC is for ransomware and Silk Road purchases. Not only that, but your "large amount of computing power" is wholly and completely outside the hands of the interested players. More than that, the major countries all these banks operate in have ruled that BTC isn't a currency, it's a coupon, and banks print coupons all f'n day long.
If I'm "JP Morgan, State Street, UBS, Royal Bank of Scotland, Credit Suisse, BBVA and Commonwealth Bank of Australia" I'm rolling my own proprietary, locked-down, lives-on-my-servers blockchain that will never, ever ever be available to the public because if I get in the door first, maybe I can force Goldman Sachs to use my blockchain instead of the other way 'round.
And if I'm Goldman Sachs, I'm already in testing and ready to roll that shit out without so much as an announcement because I'm a vampire squid and that's how I roll.
My google tells me there's something like 15m BTC in circulation. My phone tells me they're worth about $230 at the moment. So my calculator tells me there's $3.4b worth of bitcoin out there. Goldman Sachs' market cap is over $80b. JP Morgan's is over $230b. Seems like very little reward for a whole lot of risk, considering a "family feud" free-association with the word "bitcoin" would give you "cryptolocker" "terrorism" and "Mount Gox."
A key aspect of a blockchain is that trust is obtained by distribution. The inability for a player to corrupt the ledger is what makes the ledger valuable/useful. Although public opinion on bitcoin might not be good, its decentralized nature is key to the security that has led companies like Nasdaq, NYSE, Barclay's, and Goldman Sachs to invest in bitcoin companies and exchanges. A completely internal blockchain is not a blockchain, it's a plain old database. Bitcoin is a bad word, but blockchain is a magical word on Wall Street atm. GS might be able to buy up a lot of BTC, but that wouldn't give them control over the network. They can't compete in hashing power, and that's the way that you get control. Their best avenue might be to lobby against it, but that is only getting more difficult, especially on a global scale.
So yes, the bank's challenge is to create a blockchain that they can all agree to implement, and to agree upon a degree of distribution so that internal motivations at one cannot pervert the ledger (in the short run, of course they will eventually and fuck us all). One hope for bitcoin is that they cannot ever agree, or that it takes so long for them to agree, that the advantages are lost when compared to the popularity and evolved state of bitcoin.
Banks like to corrupt the ledger, though. That's how they roll. They have no vested interest in public trust, and if their instrument of public trust is a vehicle associated with drug deals, terrorism and blackmail they gain nothing from it.
I'd argue that the banks have more incentive to make a database and call it a blockchain than adopt a blockchain and use it as a database.
Well, I do assume they will eventually go down the path of collusion. That's what they do.
That said, right now they could all share a SQL database and each have read/write access to it. But I have to assume that someone, whether a regulator or someone from their own legal team, would object to that kind of a setup.
UPDATE: IBM wants to be the one.