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(Reuters) - JPMorgan Chase is partnering with start-up Digital Asset Holdings to launch a trial project using blockchain technology that could reduce the cost and complexity of trading, the Financial Times reported on Sunday.

The agreement comes as another sign that blockchain, which is best known as the basis of the digital currency Bitcoin, has wide-ranging applications for some of Wall Street's biggest banks.

One potential use for the technology is addressing liquidity mismatches in some of JPMorgan's loan funds, the Financial Times said.

“To sell a loan is a very cumbersome, time-consuming process; settlement can take weeks,” Daniel Pinto, head of JPMorgan’s investment bank, told the Financial Times. It “makes all the sense in the world" to explore blockchain's potential to improve that process.

Digital Asset Holdings is run by Blythe Masters, JPMorgan's former head of commodities.

(Reporting by Carl O'Donnell; Editing by Peter Cooney)

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Here are 5 things you may have missed from CoinDesk's State of Bitcoin and Blockchain 2016 report.

Will businesses of the future use cryptocurrencies for payments? Mark Højgaard thinks so.

“If you talk to any financial institution today, everybody says payment will be on the blockchain in the future," the CEO of Danish cryptocurrency business told Business Insider.

"I think we’re beyond where we’re wondering if the blockchain will be used for payments or not."

It's true that banks are going crazy for the potential of blockchain technology, which was first developed to underpin cryptocurrency bitcoin. Forty two have signed up to a working group, R3, looking at possible uses for the technology. Payments is just one of them.

Copenhagen-headquartered Coinify is not involved in the discussions but is hoping to ride the wave of blockchain enthusiasm in the financial service world right now.

The company runs a bitcoin trading platform for users to buy and sell digital currency. But it is also a payment service provider (PSP) that lets banks and merchants accept payment in 17 different cryptocurrencies while getting paid in their own local currencies.

“Once we get bitcoin coming in from our payments side, because we keep the bitcoins and pay out local currencies to our merchants, we can use those in our trade facility where we have demand of bitcoin," Højgaard says. "We make actually a profit on receiving bitcoin and selling bitcoin.”

It is on the payments side rather than the trading side that Coinify wants “to place our big bets," according to Højgaard. The company is signing partnerships with payment service providers around the world, offering a simple digital plug-in called an API that lets clients of the PSP easily accept payments in bitcoin and other digital currencies.

"9 months ago, you couldn’t get in touch with anyone from the payment services industry," Højgaard says. "But today, we see people calling us for our services in the PSP sector and we have 15 contracts."

Coinify's ambition is to be the go-to service provider for anyone who wants to accept any blockchain-based payment, be it bitcoin or otherwise. Højgaard says: "If there is a payment to be done on the blockchain, we are the ones to use, based on our great, very versatile platform."

Blockchain — also known as distributed ledger technology — is a name for a protocol underpinning bitcoin that uses complex cryptography and distributed ledgers, or copies of records in multiple places, to regulate, record, and enable transactions using bitcoin.

You cannot see when the user will adopt this and you can not even say that it’s going to be bitcoin. I cannot even say when the big uptick will be

Finance firms hope it has the potential to be faster than current systems and cut costs by eliminating the middle men who usually sit in between any transaction. But many are looking to use alternative blockchains to bitcoin's.

Højgaard says: "There will be hybrid models, there will be a lot of new alternatives, there might be a new blockchain – not the bitcoin blockchain."

Between the two sides of the business, Coinify is the fourth biggest bitcoin company in the world by volume. Over 15,000 merchants around the world are signed up and it has 10 to 15 new ones signing up each day. Højgaard highlights Danish food delivery start-up Hungry.dk as one of its biggest clients.

But Coinify's "big bets" rely on uptake of bitcoin or other cryptocurrencies for payments. US bitcoin companies that have banked on big consumer take up have faltered because people aren't using the digital currency anywhere near as much as they hoped. Coinify is hoping to avoid the same pitfalls by keeping things small.

“We are a lean startup business and we still act and think as a lean startup," CEO Mark Højgaard told Business Insider. Despite the volumes it deals with, Coinify still only employs 18 people.

"We spend out money wisely and we are hopefully having enough traction to maintain our position. We have great volume, we are actually making money, but we are not making more than we are spending of course. But we don’t have that same kind of burn rate that you see in the US."

But Højgaard concedes: "Nobody can tell the future right now. We had a big discussion yesterday with a lot of banks in a blockchain masterclass. We had a lot of financial institutions talking about what the future can be like and nobody can actually see at this point. That’s a risk factor in this.

"You cannot see when the user will adopt this and you can not even say that it’s going to be bitcoin. I cannot even say when the big uptick will be." Still, he thinks there will be an uptick.

There has been much discussion in the bitcoin community about whether the currency can actually handle the level of transactions that mainstream banking would require it to. High-profile developer Mike Hearn said this month that bitcoin's network is "on the brink of technical collapse."

Many banks also believe that bitcoin will be eclipsed by its underlying technology, with Goldman Sachs saying: "Bitcoin was just the opening act, with the Blockchain ready to take center stage."

Højgaard is unfazed. He says: "Us as a company, we are independent of the bitcoin and blockchain. We simply aggregate to the merchants. In that sense I think the technology will be used in some sense. Maybe the consumers doesn’t even need to know because it will be the underlying platform."

Coinify is currently in the process of raising a Series A round of funding but Højgaard would not disclose how much the company is targetting. He said Coinify hoped to transact €100 million (£76 million, $108 million) this year.

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Banks are going wild for the blockchain, the technology first invented to underpin bitcoin.

Also known as "distributed ledger" technology, blockchain uses complex cryptography and a wide network of duplicated ledgers to let people transact directly with one another online without going through a middleman.

Transactions must be signed off by both parties and record cannot be changed once a deal completes.

Finance firms believe the technology has the potential to strip out a huge amount of cost by speeding up transactions and removing the need for people to work through a clearing or settlement house.

Santander has estimated $20 billion worth of savings can be made using the technology and Goldman Sachs claims the technology could revolutionize "well, everything."

But Citi warns that there's a risk the technology could also reduce banks to just "dumb pipes" — simply infrastructure providers who let more nimble fintech startups funnel money around, deal with clients, and, as a result, take home the bulk of fees.

In this scenario, it is the fintech businesses who can make the best margins given their client relationships at the expense of big banks.

Citi's Keith Horowitz writes in a recent "Citi GPS" note:

A report by the World Economic Forum released in June 2015 said “decentralized systems, such as blockchain protocol, threaten to disintermediate almost every process in financial services”.

One argument is that as the technology firms develop blockchain solutions, there is a risk that banks could be relegated to becoming “dumb pipes,” forming only the infrastructure through which money flows, but with most of the benefits accruing to service providers.

This scenario represents an occurrence similar to what happened with the telecom industry, where the rise of the Internet allowed for competition in what was formerly a highly regulated industry. Innovations like VoIP enabled tech companies like Skype to benefit from the existing physical infrastructure.

Horowitz isn't the only one to compare the current financial technology boom to the overhaul of the telecoms industry in the 199os.

Juan Lobato, co-founder of online business finance startup Ebury, told BI in November: "Technology is disrupting all areas of finance. I was quite active in telecoms in the 1990s. The same thing happened there — new technology enabled things to be done very differently with a very different cost structure."

While Citi flags the risk that banks could be sowing the seeds of their own downfall with blockchain, the bank doesn't actually think they'll become just "dumb pipes."

It presents three arguments as to why, two of which hold up and one that seems a little suspect.

First, Citi says "banks have a very valuable asset in the form of their large identifiable customer-base." That's true. It's much harder to win new customers than it is to keep them and the banks will work very hard to keep their customers.

Secondly, banks have "unmatched experience when it comes to handling burdensome financial regulation." Again, that's certainly true. Many fintech companies benefit from the fact that they are currently unregulated or too small to face any meaningful regulatory burden. But if the sector is to thrive and grow it will have to come to terms with regulation — something banks have been doing for years.

But Citi's third argument is that "banks benefit from a relatively strong track record of safekeeping assets, and therefore have earned a certain amount of trust and credibility." Given that banks are still fessing up to billion pound fines almost weekly, the words trust and credibility are probably not the first you'd associate with large banks these days.

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Financial technology — commonly known as fintech — is not only transforming the way consumers operate, is also a huge threat to the traditional banking industry.

Think about TransferWise, one of the few British tech unicorns (private companies worth over $1 billion), and PayPal when it comes to payments and peer-to-peer matching services. Or how about the blockchain — the technology that underpins bitcoin. Or online-only banks?

All in all, the way we bank and pay for things are completely different from 20 years ago.

But the biggest shift in banking industry during the tech revolution is the switch from complacency to collaboration, said Richard Lumb, the CEO of Accenture’s financial services business to Business Insider on the sidelines of the World Economic Forum in Davos, Switzerland.

Lumb is very well placed to make this assumption. He has spent over 28 years developing strategies and business models for banks, brokers and other financials but at the same time helps run the annual FinTech Innovation Lab London, which is a mentoring programme for startups.

"What I have found interesting is how opinions have changed from Davos two years ago," said Lumb in an interview.

"Before financials would look at fintech as something that wasn't as big of a deal, something new and something that wasn't going to make a difference to their customer bases. But now they realise there's customer disintermediation and it's not just one company that's eating at their customer base, it's like a shoal of piranha fishes nibbling away.

"The only way forward is to collaborate not compete."

It is true. Take a look at blockchain for example.

Blockchain is a name for a protocol underpinning bitcoin that uses complex cryptography and distributed ledgers, or copies of records in multiple places, to regulate, record, and enable transactions using bitcoin.

Right now, if you pay someone in pounds, one bank will have to get in touch with the other and tell it to update the balance. Then at the end of the day bulk transactions are moved among banks, via an intermediary, to make sure everyone has the right amount of cash.

With the blockchain, all that hassle is wiped out — you just pay another person directly into a digital wallet. It's blockchain's novel approach to security that makes this possible.

Banks are hoping they can adapt this technology to let them deal directly with one another, making things faster, cheaper, and easier. This would involve either using bitcoin's blockchain or, more likely, building a replica system — a private blockchain.

R3, a startup experimenting with blockchain in banking, announced Wednesday that 11 top investment banks had carried out trades on a blockchain built on Ethereum, an open-source alternative to bitcoin's blockchain.

But at the same time, while the evolution in fintech is exciting and is being taken up rapidly by consumers, Lumb told us about why he thinks collaboration between the fintechs and banks will actually be beneficial to both parties.

"Collaboration is the only way forward. Both segments need each other," said Lumb.

"Fintech doesn't necessarily be regulated like a traditional financial and banks don't want to disintermediate their customers. A lot of this new technology and the companies that built them are still in their infancy so banks can help smaller companies in building a business too," said Lumb.

"I think why people like blockchain technology is because of the security element. But I guess it's still in its infancy and we'll see how it develops over the next few years. This year we'll just see pilot applications and it'll be small scale.

"Regulators must be constantly watching right now (the development in bitcoin and blockchain) but it's got to come."

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