Why Mizuho Believes Bitcoin Still Has a Future in Banking

Japanese banking giant Mizuho Financial Group is nearing completion of a pilot project that utilizes the bitcoin blockchain for securities transfer.

First announced last year as a proof-of-concept (PoC) built with bitcoin’s open asset protocol (designed for deploying non-currency assets on the public blockchain), the project is now approaching a possible launch, CoinDesk has learned.

While details remain under close protection, the head of Mizuho’s Incubation Project, Ikuma Ueno, explains that the experiment to transfer securities between banks has picked up steam since the company invested in Japan’s largest bitcoin exchange, bitFlyer, earlier this year.

Ueno positioned the effort to use the permissionless bitcoin blockchain within the bank’s larger push to understand how all blockchains and distributed ledger systems, including Corda, Fabric and Ripple can better serve its customers.

Ueno told CoinDesk:

“We’re not just drilling down to consortia types or private types. We have to look at the public blockchain as well. This investment is for us to engage with the public blockchain.”

Originally announced last March, the bitcoin PoC effort saw Mizuho pair with Japanese IT giant Fujitsu to build a streamlined financial system that could reduced risks related to securities price fluctuations and the solvency of counterparties.

The work is notable in that it coincides with a rise in skepticism that only permissioned distributed ledgers can be compliant with financial regulations. (Indeed, this appears to be sharply different in Japan, where foreign exchange players are expected to launch cryptocurrency products this year).

“Capital gains is one of the objectives. But the other is to get in touch with the public blockchain,” Ueno affirmed.

BitFlyer CEO Yuzo Cano declined to comment further on the work.

Big on blockchain

Still, Mizuho’s bitcoin project is just one of at least three ‘underground’ projects currently being developed by its Incubation Team.

In total, Ueno says there are now 10 projects at various stages of development using Ripple, Hyperledger’s open-source Fabric platform and R3’s Corda platform.

Of the blockchain projects Ueno was allowed to discuss, he said work is being done in custody, syndicated loans, trade finance, KYC and AML and cross-border payments. The most advanced of these projects appears to be Mizuho’s work with Ripple to connect its global branches: 400 of which are in Japan and about 80 of which are elsewhere around the world.

The project was initially delayed when Mizuho learned the four branches it selected for the project in Europe, Asia, the US and Europe required additional training on Ripple’s tech. (Details about the test are expected in April.)

And while Ueno confirmed the Ripple system is providing real-time payments, he added there have been “substantial disadvantages” to using the technology.

“That’s something we have to overcome to implement,” he said.

Another project using Fabric to let customers send one another cash (similar to a service available over WhatsApp) was described more as experimental.

“We haven’t executed that to being a product yet,” he said.

Behind the blockchain veil

In addition to blockchain, Mizuho’s Incubation Project Team researches other experimental fintech applications built using AI, cloud storage and more.

From its founding in July 2015, when Ueno was the first and only team member, the group has grown to 30 employees managing more than 80 projects, according to the strategist’s own count.

In the early days of his internal work, Ueno says much of the team’s time was dedicated to educating Mizuho’s executives.

As the bank’s internal understanding has matured, however, the work has shifted to focus on building relationships between the technicians and the bankers in the various departments to help conceive ways blockchain could make their tasks easier.

“This technology is like the internet,” said Ueno. “It can be used in any cases. That was the incentive of me getting deep in this technology.”

In addition to being a member of R3, Mizuho was one of 42 local and regional banks in Japan to join the Japan Bank Consortium co-launched by Ripple and SBI Holdings. So far, though, Mizuho has opted not to formally join either of the platform agnostic blockchain consortia aims specifically at Japan.

Instead of working with BCCC or JBA, Ueno says Mizuho participates on more informal “alliances” with Mitsubishi UFJ, Sumitomo and others.

He concluded:

“We do a lot of round-table discussions, we bring out our own projects to that table and discuss the platform, the technology, and how this can replace the current legacy system.”

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in BitFlyer.

Mobile yen image via Shutterstock

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