UBS to build virtual coin for banks and financial institutions

But unlike the Bitcoin digital currency, the Swiss bank’s proposed utility settlement coin would be linked to real-world currencies and central bank accounts. The virtual coin would be used to power transactions on institutional financial platforms built on blockchain technology, similar to the distributed, peer-reviewed online ledger which currently powers Bitcoin.

For instance, UBS might have its own blockchain-based platform to issue bonds, and another bank might have a blockchain-based stock trading platform, but both would use the same utility coin for settlement.

Distributed ledgers such as the blockchain enable ownership of assets to be verified by a network of computers on the Internet rather than a centralized authority. The first use of digital ledgers was to create bitcoin, the virtual currency linked to money-laundering and online drugs markets, but also increasingly to a growing number of legitimate businesses and new financial services startups around the world. Over the past 18 months, the blockchain has been increasingly eyed by mainstream financial institutions as a breakthrough way of trading and settling real-world financial instruments such as stocks and bonds.

The digital coin is being developed in collaboration with London-based Clearmatics, a startup which develops blockchain-based software to enable clearing and settlement of financial transactions.

UBS executives said the bank does not plan on issuing the digital coin itself but hopes to work with other market participants – including asset managers, regulators and market structure providers like clearing houses and exchanges – for an industry-wide product.