Why are some banks reluctant to use Bitcoin, while this bank is keen on it?

Japanese banking giant Mizuho Financial Group is close to completing a pilot project to use the Bitcoin blockchain for securities transfers.

The project was announced last year as a proof-of-concept (PoC) based on Bitcoin’s Open Assets Protocol and is now approaching a formal launch.

Although specific details about the project have not yet been released, Ikuma Ueno, head of incubation projects at Mizuho Bank, explained that the pace of the securities transfer experiment between banks is accelerating because the bank just invested in BitFlyer, Japan's largest bitcoin exchange, earlier this year .

Ueno said the project used the permissionless bitcoin blockchain and the bank is making a big push to understand how all blockchain and distributed ledger systems, including Corda, Fabric and Ripple, can better serve its clients.

Ueno told CoinDesk:

“We are not only looking at consortium or private blockchains. We also have to look at public blockchains. This project represents our involvement in public blockchains.”

The Bitcoin PoC project was first announced in March last year, with Mizuho Bank and Japanese IT giant Fujitsu collaborating to create a simplified financial system that can reduce risks associated with securities price volatility and counterparty solvency. Bitcoin's Open Asset Protocol (OAP) is designed to deploy a non-monetary asset on a public blockchain.

The project comes at a time when there is growing skepticism that only permissioned blockchains can meet the needs of financial regulators.

Meanwhile, Japanese financial institutions have recently taken the lead in the development of public blockchains, and several foreign exchanges are expected to launch cryptocurrency products in Japan this year.

Ueno commented on the bank’s investment in BitFlyer:

“Obviously, one of the goals of investing in BitFlyer is to get a return. But we also hope to use this opportunity to get in touch with the public blockchain.”

Expanding blockchain

However, Mizuho Bank’s Bitcoin project is just one of at least three “underground” projects being developed by its incubator team.

Ueno said they are working on 10 projects in various stages of development using Ripple technology, Hyperledger’s open-source Fabric platform and R3’s Corda platform.

For the projects that can be discussed publicly, Ueno said that these projects involve custody, syndicated loans, trade finance, KYC and AML, and cross-border payments. The most advanced of these projects seems to be Mizuho Bank's use of Ripple's distributed ledger technology to connect branches around the world: Mizuho Bank has 400 branches in Japan and more than 80 branches abroad.

The project was initially delayed when Mizuho heard that the four branches it had chosen to participate in the project (in Europe, Asia, and the United States) would need additional training on Ripple technology. (Details of the project are expected to be announced in April.)

While Ueno confirmed that the Ripple system is providing him with real-time payments, he added that the technology “has major flaws.”

He said:

“There are still some difficulties to overcome in order to complete the implementation.”

Another project using Fabric’s technology, which lets customers send cash to each other, is still in the experimental stage, Ueno said.

“We haven’t experimented with the project as a product yet.”

Unveiling the blockchain

In addition to blockchain, Mizuho Bank's incubation project team is also studying other experimental financial technology applications based on technologies such as AI and cloud storage.

Since its creation in July 2015, the team has grown from just Ueno to 30 people today, managing more than 80 projects.

In the early days of internal work, Ueno said the team spent a lot of time training employees.

As understanding has matured within banks, though, the focus has shifted to focus on creating partnerships between technologists and bankers across departments to help envision ways blockchain can make their tasks easier.

Ueno said:

“Blockchain technology is like the Internet. It can be used for any use case. That’s what motivated me to learn more about this technology.”

In addition to being a member of the R3 blockchain consortium, Mizuho Bank is also a member of the Japan Blockchain Alliance, a consortium of 42 local and regional banks in Japan launched by Ripple and SBI Holdings. So far, Mizuho Bank has chosen not to formally join any platform-agnostic blockchain consortiums specifically for Japan.

Instead of working with the BCCC or JBA blockchain consortium, Ueno said Mizuho Bank is participating in more informal “alliances” along with Mitsubishi UFJ, Sumitomo and others.

He concluded:

“We had a lot of roundtable discussions where we put our projects on the table and talked about platforms, technology and how we could replace the legacy systems that we’re using today.”