The Holy Grail of Global Settlement..

Gross, simultaneous settlements of securities and funds transfers.
Last year I posted The Global Block Chain Ledger, as a Payment System for the Digital World, and early this year we released the first commercial Block Chain Ledger Payment Rail which implements this vision.  Toward the end of 2015 I posted  about the vision of a  Global Continuous Settlement System to replace the existing T+3 settlement systems in use today.
The objective of both of these visions was

A strict simultaneous, irrevocable and final DVP settlement process which ensures there is no time gap between the cash leg settlement and the securities leg settlement, a truly atomic, cross block chain ledger transaction.

Move on to 2016, and we have released a POC for this holy grail of global settlement. A truly atomic cross Block Chain Ledger settlement between the Block Chain Ledger Payments Rail and the Block Chain Ledger Securities or Asset Rail.

This is commonly known within the Bank of International Settlements(BIS) as DVP Model 1:
"systems that settle transfer instructions for both securities and funds on a trade-by-trade (gross) basis, with final (unconditional) transfer of securities from the seller to the buyer (delivery) occurring at the same time as final transfer of funds from the buyer to the seller (payment)”

Ok, so we have aligned the global Financial Market Infrastructure(FMI)  and the technology view points, everyone is on the same page.

What does this all mean?The atomic transfer is actually P2P between codified "legal tender" and codified "digital asset", the by-directional atomic transfers actually happen between two high assurance HSMs, where each of the 4 keys which are the actual fiat currency (AUD) and an ASX SIN security in the POC. Due to the codification process, the codified AUD fiat legal tender, can only exist inside the payment rail, and is  instantly reconciled with the total AUD liability appearing in the RBA, after all these are just ledgers.. Only the RBA and licensed banks can codify and produce the legal finality of the Payment Rail key transfers.  This P2P model, is not new or innovative, it is almost identical to the 1995 Mondex E6 smart card based electronic cash, but  brought forward to 2016..

Ok, so that's the technology detail, what does it actually mean?
As the codified digital fiat currency is "legal tender", not an  "negotiable instrument" or IOU, and the codified asset is the "actual asset", then the atomic transfer, when published on the Bank and the Company Public Block Chain Ledgers meets the requirements  for legal settlement when combined with the relevant orchestrations by both the licensed Bank and licensed Securities Settlement. While the POC use case is based upon an initial licenced Exchange Listed Company, selling its stock via a mobile phone application, the same process can be applied to any existing "post execution" trades i.e. it is a Global Block Chain Settlements Rail, which provides continuous settlement 24*7*365 around the planet.. 

While meeting all of the 12 principle contained within

Principles for financial market infrastructures

 Ok, what does this really.. really.. mean?Quite simply:
Zero counterparty risk, zero liquidity requirements, continuous settlements across a diverse range of securities and instruments settling as required, but also instantaneously when required. There are no delayed or batch processing ever, in any part of the Financial Market Infrastructure. 

The end game is..
Close to zero systemic risk,
for the payment and securities Financial Market Infrastructure.
Plus better utilization of capital globally.

The Global Block Chain Payments and Settlement Rails are the end result of over 15 years of Block Chain Ledgers R&D, the first Block Chain Ledger, which we patented in 2000 (our patent prevents anyone, from using patents to stall the use of Block Chain Ledgers by anyone, we believe in a free market), was released commercially in 2004. It simply takes over a decade for technologies to "gestate" and reach commercial maturity.

The technologies are commercially available today, its now up to the market and regulators, the individual Investors and Bank Customers.

Theses solution exist within the existing legal, regulatory and compliance frameworks, no changes required. This is the most effective way to address existing non-compliant, or outside the system solutions like bitcoin, and blockchain thingies. By  offering a compliant solution, which actually delivers real value to all players, and letting the market decide, prohibition never works, the world is full of illegal drugs and weapons...

True disruption is not technology it is "empowered individuals" and "Trust" extended into the digital world.

The "Uber moment" for financial market regulators and Financial Market Infrastructure is here today..

Additionally the solution delivers a "social dividend" which can remove the "unbanked" and "unknown" of the world populations, and offers the opportunity for these populations to participate in the global economy, a win-win for each and every person on the planet..

What does this means for Australia?

Today we have a monopoly provider of Securities Settlement Facilities, basically this solution would simply replace the existing ASX Settlement facility (CHESS) which is operating as a DVP model 3 system, with all its inherent risks, with a low risk more appropriate DVP model 1 solution, and move Australia into the world of "continuous settlement", rather being stuck in the existing T+3 world.



BIS provides the following guidance to regulators such as ASIC:
"Because principal risk involves the full value of the securities transferred, a default by a participant in a securities settlement system that permits such risk may well entail credit losses so sizable as to create systemic problems. For this reason, it is critical for a securities settlement system to create the strongest possible linkage between delivery and payment". 
Australia needs to reduce the current "systemic risk", by considering the BIS guidance for a national Financial Market Infrastructure. The move to DvP Model 1, cannot be left of the table for another decade. The Opes Prime and recent BBY chaos and resulting loss of investor funds, cannot be allowed to continue without any regulator action.

Time for ASIC to do something about systemic risk, a movement from DVP model 3 to model 1 is a good place to start..

As the solution is a Global Block Chain Settlement Rail, we can finally end the "Australian unique"  archaic CHESS  monopoly, and position Australia as part of a global securities trading and settlement world.

Lets Compare the Pair?1. The Old World ASX CHESS

2. The Modern Global Block Chain Ledger Settlement Rail

Time for the ASX to actually understand the technologies and listen to more  than a vested interest monopoly, to to reduce the systemic risk which exists in all DvP Model 3 settlement systems. 

Australia needs to actually make Australian "innovation" more than marketing "sound bytes", and create an innovation based economy. Its time for regulators to put the national interest first. Time to use best practice Australian Technologies, not ship investment funds offshore as the ASX has recently done.
Time to Buy Australian Made..  End soapbox..

Slide Share
The Global Block Chain Payment Rail
The Global Block Chain Securities Settlement Rail

Links
Why ASX's monopoly on Clearing is hurting our financial services industry
What unmanaged systemic risk looks like
Gross, simultaneous settlements of securities and funds transfers


Disclaimer The contents of this site should not be understood to be accounting, legal, taxation or investment advice but rather as general product related educational information that may or may not meet your specific requirements.

"GLD" the alternative Global Digital Currency

Back in 2012, I blogged about The Goldsmith Who Became a Banker , and in 2015 about You are the Bank in todays digital world. Roll-on 2016, with the availability of the Global Block Chain Payments Rail, it is time to pause and consider the economic models which under pin our fiat currencies.

Ok so I am a Technologist, economics is not my profession, but it is obvious there is a love affair happening with Physical GOLD, at times it appears almost religious. In this blog, I will not look at the economic rational for "printing" fiat money or the affect it has on nations and global commerce. I will concentrate on a Digital Currency (not virtual currency), with the utility of any existing fiat currency, but backed by physical GOLD. For the exercise we have set 1000 GLD Bits to equal one troy ounce of physical GOLD or ~ $1 USD per Bit.

GLD the digital currency alternative, with all of the utility of any Fiat Currency,
but backed by Physical GOLD.

While developing  the Block Chain Ledger Payments Rail, for existing fiat currencies and Banks,  it becomes apparent that when all ownership is codified on the Global Block Chain Ledger, one creates a global set of ledgers which model the existing fiat currency, if we take AUD for example, as the Payment system is booted, in effect a closed system is created, with the total liability of AUD across the planet appearing as a liability at the Australian Reserve bank ledger. This is the result one expects. As the total set of linked ledgers, is effectively reconciled in real-time across the Global AUD holdings, the only way new AUD can get into the system is via the Reserve Bank. The reserve bank is in effect printing the money, which becomes a national liability, or an IOU to pay the rest of the world, via some future income or national capacity. The modern fiat currencies around the world are not backed by any physical or current asset.

Ok this is an engineers view of economics, as seen though accounting standards, so don't flame me about the fine details.
What many people, primarily the ones invested in physical GOLD or  perhaps a GOLD EFT, are looking for is an alternative to these fiat currencies and the economic theory which underpins them, basically the freedom to choice which currency to utilize on a daily basis, a free market for digital currencies, where the market alone decides. This vision is not one, to replace any fiat currency but one where options exist. In our vision just like the payments rail is only available to licenced bank, we invasion a simular licensed Bullion Vault network, this is essential to achieve legal finality of settlements within the Payments Rail.

While Gold is a physical asset, it is not even close to having the utility of any fiat currency, and in many cases such as an EFT, the gold is actually a derivative and has none of the original characteristics if the gold was physically held or directly owned by the individual.

Sometime cool technologies are just cool. With the release of the Global Block Chain Payments Rail, it is now possible to offer a digital currency, lets call it GLD, which operates identically to any fait currencies, one can buy a cup of coffee, via P2P payment identical to say AUD, via any Mobile Device on the planet. All physical Gold is securely held within bullion vaults around the world, with the individual ownership of each and very gold bar codified onto the Block Chain Ledger and the GLD digital currency, via the HSM protected sets of keys.

The actual deployment of a GLD currency is a bit more complex than alluded to in this short blog, but in effect the Bank is the Bullion Vaults and all P2P payments, in what I have coined GLD bits are effected on the same Global Block Chain Payments Rail, via secure P2P payments, with full legal settlement identical to any existing currency.

The technology and infrastructure exists today, which allows a group of Bullion Vaults around the world to create "GLD" the alternative digital currency,
backed by physical GOLD.

As an "alternative" global currency, the market and each Individual will have choice, about which economic theory, they wish to support.
As GLD is just another digital currency to the Global Block Chain Payments Rail, full AML/CTP, all national and international regulatory compliance, plus full legal finality of settlement obviously come with the GLD currency.

Technology is very cool,
when it "empowers" Individuals..

What does this mean for Bullion Exchanges and Vaults?Yes the "eureka" moment, physical Gold bars no longer need to be "moved around" any more!  They still need to be keep inside a Vault and audited, except they now stay put, it makes almost no difference which licenced vault the physical vault resides, The Global Block Chain Register, codifies all GOLD with providence.  The Global Block Chain Payments Rail, provides the utility of a digital GLD currency which effectively codifies and transfers ownership instantly across the plant..
Technology is cool, when it has utility..
Only licenced bullion dealers can participate and hence crate the GLD currency,  this bit stays the same, and is essential to achieve the legal finality of settlement of the GLD currency..
And, yes the payment of GLD for say a cup of coffee is actually transferring direct ownership of physical GOLD, well GLD Bits of currency, identical to any existing fiat currency, with the identical legal and regulatory framework.

Stay tunedWe are currently codifying the majority of the worlds 400 troy once bars, across the major Vaults into our Pubic Block Chain Registry ( just a refiner registry, not a currency), this will form the baseline for a future GLD digital currency.

This Public Block Chain Register,
provides the first "immutable"
register of 400 ounce bars,
including their cryptographic
global "Asset Identifier".

The first refiners Gold Bar lists have been published on the Public Block Chain Register.
The Global Gold Bar Registry is now available to any Gold Refiner.
All Public Block Chain access is free, please ask your refiner for their Secure Identity and filter on asset type  "GOLDBAR 400OZ".

The World of immutable Gold Bar lists,
with full providence is here today.

Audited records of 243,129 * 400 troy ounce Gold Bars,  from 147 Gold refiners, are now codified within the Global Block Chain Registry.
Sample Gold Bar extract:
{"AssetId":"tkCWXFDQaaI8e2UNUg2QGcfeQPuOGBQJ8G2OwJ6ZGvY=",
   "RefinerSin":"010114eae6337bc5f32e1e7d0d23cb48bXXX",
   "SerialNumber":"20045230",
   "Fineness":997.1,
   "GrossWeight":425.700,
   "RefinerCountry":Philippine's,
   "ManufactureDate":null,
   "LastAuditorSin":null,
   "LastAuditDate":"2013-03-01T00:00:00",
   "LastAuditorSignture":null,
   "LastAuditReference":"doc:10370|page:11|line:12",
   "Image":null,
   "VeriscanCode":null
}

 References
The Global Block Chain Payment Rail
The Global Block Chain Securities Settlement Rail

Additional Reading
The mystery of Banking
Banking Theory, Deposit Insurance, and Bank Regulation
Switzerland to Vote on FRB


Disclaimer The contents of this site should not be understood to be accounting, taxation or investment advice but rather as general product related educational information that may or may not meet your specific requirements.