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Writer's pictureMedici Social Team

Citiblock - Inside Citibank’s Blockchain Project And Why The Crypto Industry Feels “Meh” About It.

TL;DR: Citibank has recently introduced a pioneering program enabling institutional clients to perform global transactions via blockchain, a development that mirrors the wider financial industry's evolving adoption of this technology. Developed alongside Maersk, this innovation aims to overhaul the complexities of the existing international money transfer systems like SWIFT, hinting at a future where financial transparency and interaction are paramount. However, this advancement has received a lukewarm response from the crypto community, primarily due to its use of private blockchain, sparking renewed debates on the merits and demerits of public versus private blockchains and reflecting deeper dichotomies about security, privacy, and the role of intermediaries in the financial sector. Explore the transformation in financial technology, the intricate details of international money transfers, and the potential impacts and future of blockchain technology in this comprehensive exploration.


Citiblock - Sending Transfers with Blockchain.

Last week, Citibank, the third-largest bank in the USA, unveiled a new program allowing institutional clients—which are large companies and funds—to transmit money globally via blockchain. This development follows a trial endeavor by Citi in collaboration with Maersk, a leading shipping company, aimed at leveraging blockchain technology to simplify bank guarantees and letters of credit through the instantaneous execution of tokenized deposits via smart contracts (i.e. deposits that have been recorded on a blockchain, managed and moved by code-based contracts that can move the capital on the blockchain based on the customer’s wishes).

Citi considers this announcement as a stride towards what they are labeling an “upgrade” to the financial system, aligning with a broader industry shift towards embracing blockchain technology. This trend includes innovations from other major entities like JPMorgan Chase with their Onyx Solution, Goldman Sachs, and even the Federal Reserve.

Given these developments, one might expect enthusiasm from the crypto community regarding Wall Street’s newfound acceptance of blockchain technology. However, the reaction from the Web3 community has been relatively indifferent. CoinDesk, a respected voice in Web3 news, allocated only a few brief paragraphs to this development, and Decrypt’s coverage bore a somewhat critical headline: “Citigroup Will Let Rich Clients Use Private Blockchain to Transfer Assets.” Hardly a commendation, and not particularly accurate.

There have been no formal analyses exploring the lukewarm response from the Web3 community to Citi’s announcement. However, it’s plausible to speculate that this muted response might be due to Citi’s project utilizing a private blockchain, in contrast to public ones like Bitcoin or Ethereum. In this piece, we will delve into the Public vs. Private blockchain debate and attempt to understand the implications of blockchain technology on the future financial system.

SWIFT Is Anything But - The Problem With International Transactions.

Today, the global money transfer system processes approximately $27 billion daily, a significant portion of which is facilitated through the 50 million daily communications occurring on the SWIFT Network—an acronym for the “Society for Worldwide Interbank Financial Telecommunication.” Incepted in 1973, SWIFT aimed to streamline and internationalize a predominantly US-centric financial telecommunications system operating on the Telex network, which was dependent on phone lines. The concept was straightforward: standardize the messages, simplify the process, and enhance the reliability and speed of the entire system.

However, fast forward 50 years, and the methodology for transferring money internationally largely still looks like this:

Image courtesy of Circle


The current system is intricate, expensive, and laden with numerous potential points of failure—or “risk,” as banks prefer to term it. Consequently, the costs implicated in international money transfers today can be disparate and are frequently unknown to the involved parties. This often results in both sending and receiving banks either overcharging clients or absorbing more cost than necessary. To echo the words of Austin Campbell, an American Stablecoin expert and professor at Columbia University, during a recent discourse in NYC: “Who really knows the cost to wire money internationally? No one? Well, neither do the banks!”

Thus, for the banking sector, blockchain presents an opportunity to alleviate much of the complexity and expense involved in sending and receiving international funds. This simplification is pivotal in a world that is progressively becoming more interconnected, with a constant increase in international transactions as companies continue to outsource, hire from abroad, and establish trade with international partners.

Unblocked - The Citi Project To Make SWIFT Go Away.

Consequently, when Citi initiated the project, Maersk, the world’s second-largest shipping company, emerged as a clear partner. The collaboration was logical: Maersk operates internationally, conducting business in nearly every country, and regularly necessitates the use of various bank guarantees and letters of credit to transact with multiple international entities.

For those unfamiliar with the intricacies of shipping or the concepts of Bank Guarantees or Letters of Credit, here’s a simplified explanation: In the realm of shipping, Bank Guarantees (BGs) and Letters of Credit (LCs) are crucial financial tools used to reduce transaction risks and facilitate trade. A BG is essentially a commitment by a bank to cover a debt should the debtor default. It safeguards parties against credit risks and proves invaluable when shipments precede document reception. Conversely, an LC is an assurance from the buyer’s bank to the seller, promising payment within a specified timeframe, thereby ensuring payment reliability. These instruments are integral in international trade, providing a layer of trust and security in transactions, particularly when they involve remote partners or varied legal frameworks.

From Citi’s disclosure, it seems the foreign exchange component has been developed as an offshoot of the broader initiative to tokenize BG and LC transactions. It will soon be available to all institutional clients as an alternative to the conventional SWIFT transfer method.

However, it’s crucial to note that the blockchain employed is private and internal to Citi. Hence, transactions are confined to Citi branches globally; albeit, they can now occur 24/7—a revolutionary development for traditional banks who usually operate solely during market hours and close for any holiday they can get their hands on.

“Not REAL Blockchain” - Why The Crypto Industry Isn’t Impressed.

The fact that a private blockchain is being used is the root of the lukewarm response from many in the crypto industry; the ongoing debate between public and private blockchains has no straightforward resolution.

In essence, there are primarily two approaches to developing a blockchain system. One is a Public Blockchain, exemplified by Ethereum and Bitcoin, where the ledger is transparent, and anyone can read/write to it. The alternative is a Private or sometimes “Consortium” Blockchain, where read/write access is exclusive to a specific individual or group.

To Blockchain purists—those who ardently believe in decentralization—the idea of a private blockchain is fundamentally at odds with the principles of a free and open blockchain system. Conversely, for more conventional or privacy-conscious entities, a public blockchain is perceived as a security risk and deemed untenable in financial systems where privacy is paramount.

In truth, both stances hold merit, hinging primarily on individual belief systems (more on this shortly). The tepid response from the crypto community to Citi’s international transfer system (not that Citi is particularly concerned) stems from it being a private blockchain. Access is exclusive to Citi; the chain only logs transactions within Citi’s domain, and utilization of the network is restricted to Citi’s customers or partners. It’s a decentralized system encapsulated within a centralized framework. As Omid Malakan aptly put it in his piece for Cointelegraph:

The initial drawback of any private network is its deviation from the fundamental ethos of crypto, designed to obviate intermediaries like banks and the fees they impose… The optimal correspondent bank is not a more efficient entity—it’s the non-existent one, rendered redundant by stablecoins.

Predominantly, the crypto community is composed of blockchain purists, many being engineers and technologists. In contrast, entities like Citi represent the banking sector, and as expressed by David Solomon, CEO of Goldman Sachs, in a significant editorial, bankers generally are skeptical about small startups and teams forging the future of blockchain technology, considering banks more suited to harnessing it.

Public vs Private - Is there a right answer?

No, there’s no definitive answer, and I’ll just say it outright. The technology is still in its infancy, and societal adaptation around it isn’t mature enough to determine whether public or private blockchains will dominate.

In the interim, both will coexist. Public chains will continue to form the foundation of the technology-centric crypto ecosystem. For traditional entities venturing into this realm, including governmental bodies, private chains will predominantly be the choice, at least for now. Each has its valid rationales.

In the short run, proponents of private blockchains will emphasize the security and data privacy integral to our financial infrastructures. This viewpoint has its merits. Financial transactions are typically considered private matters, unwanted to be displayed publicly on the internet, and financial systems are designed to limit access to certain individuals (drug cartels, bad-actors, rogue governments, etc.) which is difficult to manage on a public blockchain. Additionally, despite anonymity, exposing specific wallet’s trading and spending behaviors could invite issues like trade front running and diminishing competitive edges as individuals and entities lose the advantage of confidentiality.

Some advocates of public chains might welcome this transparency. However, at present, it would likely cause too much disruption too quickly. This discussion is undeniably more intricate than the abbreviated overview provided here, with multiple facets yet to be explored. However, for the context of our discussion on Citi, these are the primary considerations.

In the long-term, the arguments of public blockchain enthusiasts will probably win out; technology has a habit of slowly changing society until one day it is unrecognizable (just look at your phones). In a scenario where data and transactions are universally accessible, the consequential leveling of the playing field could be beneficial for societal norms and market practices. The potential for anyone to audit and thereby trust public chains introduces unprecedented transparency to our financial system. Also, considering the ongoing evolution of blockchain technology, future innovations may lead to the emergence of hybrid chains, addressing current limitations and offering a balanced solution.

In the end, those championing public blockchains likely have a valid point in foreseeing their predominance in the future. Therefore, it’s understandable why they might be dismissive of entities like Citibank entering the domain. Nonetheless, Citi’s advancements represent a progressive step for the sector and could catalyze the adoption of a technology poised to reshape interactions and transparency significantly. So, regardless of whether you align with Citi or the Crypto community’s stance, it’s worthwhile to pause and appreciate the little piece of history unfolding before us.




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