The Strategist

What you need to know about Mitsubishi Bank's cryptoprojects

01/26/2018 - 13:47

The bank, which is the eighth largest in terms of assets, is going to create its own virtual token and crypto-exchange. Without taking into account the correction, the growth of the crypto-currency market practically did not stop during the last year. For the period from the beginning of 2017 to January 7, 2018, the aggregate market capitalization of all crypto-currencies has increased by more than 4500%.

It is possible that this is the largest increase that any asset class has shown during the year. The two main types of crypto-currency projects, which became the drivers of the growth described above, are focused in one of two directions. Some of them intend to develop the blockchain underlying the crypto-currency, and create partnership projects with corporations. Others seek to replace cash and make virtual coins the main way of storing and transferring funds.

The first group includes most crypto-currency projects. The tokens themselves still play a role in these projects, mainly as a means of paying transactional fees, but their development is not the main line of business. Instead, projects like Ethereum, Ripple and Stellar are adapting their technologies to help companies in various industries, for example, finance, technology, energy and retail.

For instance, blockchain can help eliminate some obvious shortcomings in the existing banking system. Firstly, there is no need for third party participation for blockchain-based transactions, that is, the bank is absent in the chain and this is likely to reduce the cost of the transaction. More importantly, blockchain transactions are confirmed 24 hours a day, seven days a week, which means that cross-border transfers can be processed in a few seconds, not three or five days like now.

The second group of cryptoprojects seeks to involve as many sellers around the world as possible in their network so that they accept tokens for payment. This group includes, for example, Bitcoin and its competitor Lightcoin. The task of this group is to replace cash or any other type of paper currency and become the main means of payment for goods and services.

Until recently, global corporations, which paid attention to the crypto-currency industry, focused on development or implementation of blockchain in small test or real projects. However, the management of Mitsubishi UFJ Financial Group, the largest bank in Japan and the eighth largest in terms of assets, intends to act differently. According to the local newspaper Mainichi, Mitsubishi UFJ plans to launch its own crypto currency, MUFG Coin, and its own crypto-exchange by the end of the year. The banking giant, which is larger than Bank of America, has already informed Financial Services Agency of Japan about its decision, although the regulatory barriers to such a step still exist.

In addition, the bank is working on another project related to crypto-currencies. At the end of December, Mitsubishi UFJ Trust and Banking filed a patent application for the registration of a system for the safety of users of crypto-exchange exchanges. This service will be provided to Japanese traders and, as Mitsubishi UFJ promises, will protect against hackers and incidents like bankruptcy of the Japanese stock exchange Mt Gox. Back in 2013, Mt. Gox was the leading Bitcoin exchange. It was assumed that it was hacked, and hackers got 850 thousand bitcoins (about $ 10 billion at current prices) and tens of millions of dollars in cash. After that, Mt. Gox declared bankruptcy.

It is expected that the service will be launched in April 2018, or earlier, if the Financial Services Agency recognizes Bitcoin as an asset that can be transferred to trust management. Initially, this service will be available only to Bitcoin owners. Later, depending on the client demand and the policy of the Financial Services Agency, other crypto-currencies may be added. It remains to be seen how successful the attempts of Mitsubishi UFJ to stabilize the price of its coin and protect customers from hackers will be. However, this is one of the first steps of one of the world's largest banks. Market participants and all concerned should follow developments.