Introduction to Distributed Ledgers and Blockchain

Transcription

1 Introduction to Distributed Ledgers and Blockchain

2 Shared Ledgers Single shared ledger with a centralized system/function Existing today Single distributed ledger with no single point of failure shared among permissioned or public validators Examples of Distributed Models: Model 1 Existing centralized shared ledger Model 2 Non-permissioned distributed ledger Model 3 Permissioned distributed ledger Source of Diagrams: FT- Technology: Banks seek the key to blockchain by Jane Wild, Martin Arnold and Philip Stafford

3 This Consolidated Replicated Ledger Decentralized becomes this Decentralized/Replicated ledgers with no single point of failure replicated among permissioned or public validators and is replicated and used like this: Source: The Value of Replicated, Shared Ledgers from First Principles Richard Gendal Brown

4 Blockchain Private permissioned/pre-screened known actors performing validation Public anonymous unknown actors performing validation Regardless if a permissioned or public ledger that is replicated or distributed, different levels of privacy and validation are still needed among trusted or non-trusted entities Cryptographic encryption/privacy between entities through public/private keys Validation/Consensus mechanisms to ensure ledger is a aligned and prevent double spend

5 Privacy on the Blockchain Various approaches using private or public/private key encryption Private Key Encryption - Hash function algorithm allows private transactional informational to be converted into a cyphertext output for public distribution When any aspect of the transaction message container is changed, the numeric identifier changes Avalanche Effect Source: Wikipedia definition of cryptographic hash function Wikipedia definition of ciphertext

6 Validation on the Blockchain Diverse number of consensus mechanisms have been created requiring different levels of time/effort to validate a block one size does not fit all Permissioned: Proof of Stake known validators weighted based on ownership percentage Non-Permissioned: Proof of Work Mining with incentives/rewards (tokens) Merkle Tree pairing of transaction hash identifiers into a block Source: Satoshi Nakamoto Bitcoin: A Peer-to-Peer Electronic Cash System

7 Cryptocurrencies Many different types of cryptocurrencies beyond bitcoin currency Digital currencies serve different purposes depending on the type of ledger and blockchain Incentives for public/non-permissioned miners to validate transactions on a public ledger blockchain New issuance discovery of digital coins through validation of blocks by miners For example miners on the bitcoin blockchain are rewarded 25 XBT currently Transaction fees can also be paid by users of various blockchains to the validators Peer to Peer Payments in the form of a digital currency instead of a government issued currency Watermarked Tokens - Metacoins/Colored Coins with underlying smart contracts

8 Potential Financial Use Cases Potential Use Cases of Blockchain ISITC Working Group Foreign Exchange (Spots, Forwards, NDFs) clearing and settlement Settlements WG OTC Derivatives Clearing, Settlement, Reporting, Reconciliation Derivatives WG and Recon WG Bond and Coupon Payment distributions Corporate Actions/Income WG and settlement and maintenance Settlements Mortgage Back Securities Baskets Issuance and Tracking Corporate Events - Voting rights issuance and tracking Corporate Actions Voluntary and Mandatory Corporate Actions distribution, maintenance Corporate Actions Institutional Loans - issuance, settlement and maintenance Settlements WG Commodities - Precious metals (Gold) and minerals (Diamonds) Issuance and ownership Private Stock/Equity Issuance and Tracking Issuance and Tracking Payments Sub-group within Cross Border Payments Settlements WG US Treasury Repos Clearing, Settlement and Reconciliation Settlements WG and Recon WG Alternative Assets - Art, Intellectual Property, Real Estate Accounting, Valuation and Registery Sanctions Screening, AML, KYC Regulatory Trade Repository Reporting Regulatory Reconciliations Recon WG Collateral Management Settlements WG Stock Loan Lending WG

9 ISITC Role? Participation in various standards organizations WGs TC68/SC47SG1 Digital Currencies Study Group FIX Digital Currency and Blockchain Working Group FpML Standards Committee SIFMA Blockchain Roundtables Post Trade Distributed Ledger Group (PTDLG) Lending our subject matter expertise as used cases are identified on potential product types: Business processes (actors/roles) as defined in our market practices Key data elements of various complex financial products as defined in our market practices

10 Additional Video Resources for High Level Introduction to Blockchain Financial Times: How Bitcoin and Its Blockchain Work WSJ: New Applications for Bitcoin's Blockchain Technology We Use Coins: What is bitcoin