Bitcoin-Inspired Technology Starts to Reshape Currency Markets

An employee of the Dutch company Bitonic tracks the bitcoin exchange rate in Baarn, Netherlands, in 2014. Bitcoin-inspired ledger technology will be used in a forthcoming currency-trading platform offered by CLS Group, which settles most of the world’s currency transactions.

Bitcoin-inspired ledger technology is taking its first steps in foreign-exchange markets.

Companies that provide payments systems to banks are unveiling products that use distributed ledgers to lower the costs of cross-border transactions, amid signs that stricter regulations have pushed smaller lenders to cut their participation in currency markets.

On Tuesday, New York-based CLS Group said clients will be able to access a forthcoming currency service through a distributed ledger. CLS settles the majority of the world’s currency transactions.

Interest in ledger technology has surged since the appearance of bitcoin and other digital currencies, which use ledgers called blockchains to create a parallel money system that exists outside banks.

San Francisco-based payments company Ripple Labs Inc., formerly called OpenCoin, on Friday said seven global banks, including Bank of America Merrill Lynch and Banco Santander SA,


were joining an interbank payments network using its ledger technology.

Conventional payments systems rely on a central authority to keep track of who is sending money to whom; settlement firms, such as CLS, sit in the middle of foreign-exchange transactions so neither party has to risk sending one currency and not getting the other one in return.

Distributed ledgers are shared among all participants, by contrast, vastly simplifying trades. Blockchains used by bitcoin and other digital currencies are public and universally accessible.

Banks and other financial firms are looking to capitalize on this idea by establishing privately controlled confidential blockchains to track a raft of financial transactions, from derivatives to commodities trading. Proponents of this technology say it could simplify and speed up payments of currencies across borders as well. Skeptics say distributed systems could end up requiring more processing power and being less secure.

Banks are going through a rough patch and may see promises of cost-cutting with increasingly sympathetic eyes.

Ultraloose monetary policy has dented their business margins, while stricter financial regulation makes it more expensive for them to expand their balance sheets. This has led to a decline in global currency trading—from $5.4 trillion a day in 2013 to $5.1 trillion in 2016—for the first time in 15 years, according to the Bank for International Settlements. Small participants, such as local banks and hedge funds, are paring back the most.

“The cost of running medium and small operations has risen because of regulations,” said David Puth, chief executive at CLS. He aims to gain market share by offsetting some of these costs.

While distributed ledgers are barely testing the waters, they could end up posing a threat to the current messaging infrastructure, managed by the Society for Worldwide Interbank Financial Telecommunication, or Swift.

A cooperative society owned by banks, Swift recently has been under more scrutiny after being infiltrated by thieves on at least three occasions. Swift says the attacks were the result of weaknesses in user security, not its core messaging network, but nonetheless has pledged to improve security.

Natasha de Terán, a spokeswoman for the cooperative, said Swift “recognizes the significant potential in blockchain and distributed ledger technologies” and is exploring its use, but she added, “The technology still has some maturing to do.”

Swift also is part of Hyperledger, an open-source project involving several banks and technology companies. CLS is using Hyperledger for its new platform.

“It’s time for banks to push on and move from discussing the potential benefits of blockchain to making them a reality,” said Julio Faura, head of research and development at Banco Santander.

Write to Jon Sindreu at

mm – leading Bitcoin News source since 2012

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