As this blog has previously noted (here and here), the primary problem with the current incarnations of blockchain-based digital currencies (e.g., Bitcoin, Ethereum) is that they have no intrinsic value. Their commodity value is solely based on the relative value of anonymity and public security for Internet commerce, and the cryptocurrencies are not generally accepted by merchants and not accepted at all for obligations to governments (e.g., taxes).
But, as this blog previously forecasted, the technology behind public ledger blockchain technology was solid, presenting an opportunity for those enterprises to greatly simplify exchanging intangible and tangible items of value. Once a blockchain-based unit of exchange was redeemable for something of intrinsic value, the use of the technology for currencies and commodities (Internet-based or otherwise) would greatly expand.
Enter on the stage UBS, the Swiss banking conglomerate. The bank, in conjunction with a number of partners and technical advisors (Barclays, Credit Suisse, Canadian Imperial Bank of Commerce, HSBC, MUFG, State Street, Clearmatics, BNY Mellon, Deutsche Bank, Santander, and ICAP), is using blockchain technology to prototype a redeemable currency called “utility settlement coin”. The USC would be used to transact in bank deposits in any fiat currency held with a sponsor bank.
The attraction of blockchain currency is its potential to lower transaction costs due to the promise of lower authentication burden and the lack of financial intermediaries, made possible by the public ledger. UBS has the proprietary cryptocurrency in testing now, with plans for a limited roll-out starting in 2018. Keep an eye out for more implementations of blockchain ledgers for redeemable financial transactions.