The Global Block Chain Ledger, as a Payment System for the Digital World

While we originally developed the "Block Chain Ledger" technologies to secure our cognition private Triple Entry Accounting systems; the growing interest in bitcoin type blockchains has lead to a focus on the opportunities that distributed Block Chain Ledgers in general could create; not in the crypto-currency world but in the existing world of “real” payments.

Having recently spent 4 months in London, where these activities are beginning to be taken seriously by the "big end of town", this blog looks at how a practical payments system might be created from our Global Block Chain Ledger "eco system". While the existing payments system examples are taken from the UK, they are essentially the same or similar enough to the Australian and most other counties environments. The UK is simply way ahead of Australia, in this area, across both Government and Private Industry, as demonstrated by the level of "real" investments being made each month in London alone. France is also vary active in this area, but will stick to UK examples.

The United Kingdom
At present in the UK, payments operate on separate ledger mechanisms which echo the past in terms of their structure. All existing core Payment Systems in the UK operate by settling the obligations from one of their Direct Participants to another across settlement accounts held at the Bank of England.   For those institutions that are Direct Participants in the Payment Systems, their settlement accounts at the Bank of England are normally directly linked to their Reserve Accounts (thus enabling them to participate in the Bank of England’s “Sterling Monetary Framework”).   At present, over 150 institutions hold Reserve Accounts at the Bank of England.

As such, it could be argued that these form the Central Ledger for £ Sterling and the account structures held within each of the participating Banks to keep track of their customers’ balances form separate “nodal” sub-ledgers.   A customer’s “nodal entry” balance may be positive or negative depending upon whether they are in credit, overdrawn or have authorised loans with that institution that exceeds their credit balance.
Collectively, it could then be stated that the daily payments between Banks on behalf of either themselves or their customers takes place within a Closed Network Group of authorised institutions.   Unless the Central Bank has released “new money”; it remains a “sealed” Group operating within the total value of £ Sterling in existence.   As such, all daily transaction flows between those participating in the “eco-system” therefore net out at the end of the day.   At its widest level, this eco-system encompasses all entities and systems which require the movement of £ Sterling to operate.

Payment Systems are currently the means by which the instructions to move monies from Banking Institution A to Banking Institution B (on behalf of their respective customers) are securely transmitted and processed. The UK currently have several, which reflect the differing means of money transmission; CHAPS for real-time guaranteed High Value Payments and Cheque and Credit Clearing (for when a paper instrument (the Cheque) is used by a customer as their instruction to credit funds to another party who banks elsewhere in the UK Banking System) are two examples.

These payment systems therefore act as the interface between the “Central Ledger” and the “Nodal Ledgers” held at the Banks and other Financial Institutions who participate in the UK payment “eco-system”.  They need to be secure, trusted and resilient. Erroneous or illegal transfer instructions purporting to represent the wishes of a customer to transfer funds elsewhere cannot and must not exist.

The collective needs and wants of the various players participating in the existing UK Payments arena therefore mirror closely the underlying aspirational attributes of a distributed ledger system; a single, secure, trusted ledger mechanism where authenticated transfers between Financial Institutions and their customers take place legitimately and without impediment. Basally identical to the Australian Payments System.

A lot of work and thinking is taking place within the UK Payments Industry at present to determine its future shape and strategy for the next 10 years. The core objective of any new Payment Systems are around innovation and the aspiration within the payments industry to look to consolidate a number of the payment systems and to operate to common data and message standards.

The question is whether any aspect of the logic backing the distributed ledger process could be brought into use as part of the forward looking payment system design.

Actually the solution is pretty straight forward when triple entry accounting and commercial Block Chain Ledgers are applied to the scenario above..

What if full Distributed Ledgers were held at the institutions that held authorised Banking Licenses with legal authority for Settlement Finality still vested with the Bank of England as the repository of the Public Block Chain Ledger?  The two banking parties in a transaction on behalf of their respective customers would provide the authenticated bi-lateral adjustment on there own distributed Private Block Chain Ledgers, the transfers between the various Private Block Chain ledgers would then be applied to each Private Block Chain Ledger, and also on the common Public Block Chain Ledger operated by the Bank Of England. The Public Block Chain Ledger would be atomic and operate in real-time or in netted blocks thereby representing the Deferred Net Settlement status currently present within existing Payment Systems.

The identical arrangements can be applied to two parties transferring funds between each party, where the Public Block Chain Ledger is now maintained by any entity with an Banking Licence.
As can be seen each transfer is fully sealed by each party and the Public Block chain Ledger, and ultimately by the Bank of England. The third leg of each triple entry accounting system ( the Public Block Chain Ledger) is publicly available and hence can be verified by anyone anywhere at any time.
Of course the system could be adjusted to also support P2P transfers and also transfer anything of value, but lets stick with our payments system example for now.

Finality
What parties on either side of a payment transaction (Private Block Chain Ledgers) want above all else is certainty around the payment successfully taking place. In particular, that the payment will not be revoked. Whilst this is an obvious concern for the end beneficiary, at a systemic and commercial level, the risks go deeper than the simple question of whether the Payee has sufficient liquid funds for the payment to be successful and centre on whether multiple payments can be revoked owing to the Financial Institutions handling the payments becoming insolvent.

For the main UK Payment and Settlement systems, the means of protecting payments “in transit” is provided via their designation under the Settlement Finality Regulations. Specifically, payment and settlement systems that are designated may apply for protection against the operation of insolvency law for instructions entered into their system.

In the proposed payments system above, the triple entry accounting system (the Public Block Chain Ledger) operates on an atomic, and instantaneous basis, the transaction once sealed in the Block Chain Ledgers, cannot be modified or removed. As it is a Public Block Chain Ledger, anyone can validate this. By virtue of the application of the regulations, payments then effectively become final and irrevocable at the point in the system’s processes where settlement is deemed to have taken effect.

You may notice there is no mention of "mining" or any "crypto currencies" anywhere in the above description, it is all simple extensions to existing double entry accounting, and application of secure crypto based technologies to form a Block Chain Ledger.

Of course one requires a complete "eco system" solution similar to the existing payments system for this to all be real, and this exists today. This includes  mandatory security policy that all keys must be protected and stored inside HSM's.

Simple, cheap and deploy able, based upon incremental technologies for the Digital World, which could be used as the first truly Global Block Chain Ledger based payments system.

As I said at the beginning of this blog, we already operate a simpler form of discrete double entry Accounting Ledger already.  The big step is to secure these with Block Chain Technologies and create the Public Block Chain Ledger. The Payment System would then become the network and rules mechanism by which the transactions would take place. The cryptographically secure audit trail of transactions conducted through the network, and made public ally available via the Public Block Chain Ledger would represent the Payment System and would become, by default, the UK Payment Transaction Repository (PBCL) which could then be utilised as required by Government and law enforcement agencies, or in fact anyone in terms of the data that it would hold.

Completeness, using industry standard web services for payments protocols using Turning Complete specification (BPEL4WS), to ensure integrity of payments system protocols.

This blog provides the insight of how Australia, and the existing payment system participants could leap-frog one or more interim steps to the next level of evolution, and become part of a truly Global Block Chain Ledger, for the benefit of all of society, all based upon Australian developed technologies.

Also see
Secure Global Digital Identity, for the Digital World
Identity Theft and Digital World
Free hardware generated and protected Bitcoin/BlockAuth ECDSA Private keys.
Decentralized Authentication
Global Public Block Chain Ledger Navigation

Sample Payment Block Chain Ledger

[{"BlockNo":"ac829616-d093-44d9-92f1-8d44e9ef1453",
"BlockSin":"20014dc33d149ef0335226a0ce3afb18dfc2be6c1abd23c8c0b9",

"BlockParent":"00000000-0000-0000-0000-000000000000",

"BlockSignature":"MHECIQDOMvt89PxftUyE1sxn074sO1ruClqVntsTw9CbHQKTowIga8oqg0A9ztEPUCDSREEN+mBJgXEKo1G3CL8guFsc6FUCARQCBFX8fj0EIQMHRLPlFdxfpbGDgSLog4tk3Gk94Sm03BWQwGseyMfrtw==","BlockVersion":1,

"Trandate":"20150918T00:00:00",

"Currency":"AUD",

"BaseCurrency":"AUD",

"FxRate":1.000000,

"Debit":15.0000,

"DebitRefNo":"ac829616-d093-44d9-92f18d44e9ef1453",

"DebitSin":"2001211faeb505284fd79d04cf5fd012b42ec79411632b97f075",

"DebitSignature":"MHECIQDpREZEPVbYiaashbkT6FgpRRAzhnPYZUfkfDdTrpLL+AIgcfd2bJtsS38hTdguVvzniB4vSh6WFuX9rWzdaz6s4tICARQCBFX8fj0EIQJIs2HIbbv85aP8lOnA4APvwOXwD2781fT5mR+xftQz4A==",

"Credit":15.0000,

"CreditRefNo":"ac829616-d093-44d9-92f1-8d44e9ef1453",

"CreditSin":"2001a8562a2393f2f9cf1f794844fdcd83d5d4cadfd0cce65bf9",

"CreditSignature":"MHICIQCmHEqQ1GbOdD3en5Pq73CYaq6x3cVLWX8jqLwCub87YgIhAPQLjPZds49boBSXCyqZnti3ICF1gLG0xwHzLI1V6OISAgEUAgRV/H49BCEDneGerUuk/Jb1OEurOXAw1MlWB6M5XjG51g9Ceg2ncug=",

"AuditSin":null,"AuditSignature":null},

{"BlockNo":"a4ae7977-07b8-4b02-b1b0-9eddbc2eadf5",

"BlockSin":"20014dc33d149ef0335226a0ce3afb18dfc2be6c1abd23c8c0b9",

"BlockParent":"ac829616-d093-44d9-92f1-8d44e9ef1453",

"BlockSignature":"MHICIQCfl3iIYF5zsk48e0lct0Rq7PRpNK0R95l5P3IU6RuohgIhAOFnE8ol9CR0lHuHLS/mFdoQv9OHpk6fJvo/EF0R+SWGAgEUAgRV/H4+BCEDB0Sz5RXcX6Wxg4Ei6IOLZNxpPeEptNwVkMBrHsjH67c=",

"BlockVersion":1,

"Trandate":"2015-09-18T00:00:00",

"Currency":"AUD",

"BaseCurrency":"AUD",

"FxRate":1.000000,

"Debit":10.0000,

"DebitRefNo":"97eefa29-00b6-4b15-a914-19dc05cc8b12",

"DebitSin":"2001211faeb505284fd79d04cf5fd012b42ec79411632b97f075",

"DebitSignature":"MHECIHCt7wQquk4xGEhgZHv4ZvxzJ6PODVuQSCjcEsgRaxYOAiEA6uTpQfrxcZwbLYpLqh0zyv2XQr5LEe1kTfG9ozx6+7wCARQCBFX8fj4EIQJIs2HIbbv85aP8lOnA4APvwOXwD2781fT5mR+xftQz4A==",

"Credit":10.0000,

"CreditRefNo":"b32b66ee-a46f-46fe-a293-302f106936c7",

"CreditSin":"2001a8562a2393f2f9cf1f794844fdcd83d5d4cadfd0cce65bf9",

"CreditSignature":"MHACIDlsBZI+NlG46z38okOLPLBERCOg8admBBwaDzP1YcN9AiBn+ex7efF/tnh6T8oGMzqI4eiKuxrEbr/xCWbEoSc+egIBFAIEVfx+PgQhA53hnq1LpPyW9ThLqzlwMNTJVgejOV4xudYPQnoNp3Lo",

"AuditSin":"20018d8cf3eaa3e5303209bea96aadf52cb11bda668f191e035b",

"AuditSignature":"MHICIQCZfz42LWmZU2YTBNNogMIEZ0+LdcJGSVDnTJzvdyTUXgIhAIFr+9BY0OUL4fHLneJK0uB6GjdSS0ikaw5PFXEvp5DEAgEUAgRV/H4+BCED++O40gs13qplV0IZG4RfMrLvK/Qn96B5tMEzIC0p8GY="}]

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.

Free, Real-time Gross Settlement system (RTGS) for everyone, with a mobile phone.

Today, "money" is a in all cases a bag of bits within a computer system, gone are the days of bank vaults, guards or burglar alarm systems. Money is today sent for close to zero incremental cost between computers. The real costs involved in monetary payments, is securing the 100+ year old double entry accounting systems, and the mass of clerks and auditors who keep  "payment systems" and decade old payment networks like SWIFT running, and manage the risks associated with any losses. To be fair there is a "significant" regulatory cost imposed on banks, and payment systems as well, but these do not match the excessive payment fees which exist today, this is what creates the opportunity. If existing financial institutions offered a free payment service, or close to costs, once they isolated or upgraded their old world insecure accounting systems, than a new global service would get wind in its sails. The system proposed herein is the next generation of Real-time Gross Settlement Systems (RTGS) where all transactions are atomic, instantaneous and irreversible, and have the ability to execute in a distributed orchestrated data and processing environment, including P2P, even if the P2P is not the most likely first commercially deployable option.

Back to reality
An observation; there is "significant" amounts of money going into bitcoin related "block chain" activities, which will never become "verbs" such as to "Google" to "Xerox". There is no truly disruptive technologies evident in this space, which is probably not surprising given the focus on banks and their involvement combined with the massive amounts of profits made from processing payments today. A free payments system is simply not on anyone's agenda, it is typical to see recent graduates as heads of Banking block chain groups, or it is a part time activity for the non executive banking staff..

Like most entrepreneurs, one looks to the "big vision" which can "change the world", and make life better for all. Making money comes as a by product of achieving the "vision" or getting as close as possible, a fundamental different view of the world from the typical banking executive.

The Bill Gates foundation has spend billions trying to solve third world health problems, such a malaria, a free payments system which creates wealth for individuals, can more effectively address third world health issues, than any cure. Poverty unpins many third world heath problems.

There is a saying "Teach a man to fish and he can feed his family forever" in this case enabling third world populations to securely participate in the global economy, we envisage will bring lasting change for the better for everyone. The "Vision"..

Hence if payments, are the focus, rather than a total "Block Chain Ledger for Everything" solution, a vision which is consistent and a subset of the Secure Block Chain Ledger Vision, is a world with a fully decentralised and totally free payments system which is available to anyone who has only a mobile phone.






If one looks at the bitcoin network, it by design drives up the cost of a each transaction, some say its sits at ~$10 per transaction today, totally the wrong approach, its this basic.

Considering the references listed below, if one combines "triple entry accounting", the Private and Public Block Chain Ledgers and Secure Identification Numbers(SIN), and lastly BlockAuth then the implementation of a secure payments system becomes very simple, especially as almost all of the technologies required exist as freely available software today. To support a wide range of eCommerce, the same protocol supports orders and invoicing as well as payments, the two should not be separated.

As all public Block Chain Ledger entries are atomic and instantaneous, and in reality have close to zero incremental cost, then all payments should also be free, this underpins the vision.
We expect the wide availability of free payments, to have the potential to increase the GDP of many third world individual and countries, and lead to an improvement in the wealth of  all.

Today Cloud Accounting for sole traders, and Superannuation Funds is free, no-one needs to pay for accounting software, why not free payments as well.

This result will be truly disruptive to the existing old world, when combined with a fully decentralised Public Block Chain Ledger, and secure payment protocols, making use of the almost universally available global mobile phone platform and free software.

Key Features

• All payments less than a threshold, say $10,000 are Free
• Real-time, atomic, cryptographically secured, fully decentralised Public Block Chain Ledger, participating in a "Triple Entry" accounting ledger protocols.
• Explicit for FX transactions as required, no explicit gateways or exchanges required.
• All transactions appear instantly on the distributed distributed Public Block Chain Ledger
• Requires only a mobile device, with internet access,lightweight data usage
• Suitable for both first and third world participants, bring into the commercial world the existing disenfranchised populations.
• Supports payments to and between individuals who lack first world bank accounts or  identification
• Based upon well known double entry accounting systems, with addition of secure Block Chain Ledger technologies. Private Block Chain Ledgers do not need a single or standard technology solution set, only that they can publish and participate in supporting the global distributed Public Block Chain Ledger protocols
• Reuse of as much bitcoin technologies and available free software as possible
• No bank account required
• Saleable from micro payments though to any value, recognising there may be additional measures required to address additional risks or compliance requirements.
• Supports anonymous and non anonymous payments via SIN and SIN attributes.
• Non anonymous SIN required for all transaction amounts above $10,000.
• Support for commercial Orders and Billing within common payments protocols
• Any taxation is held within the Private Block Chain Ledgers, all payments are considered tax free as is the case today.
• Makes use of IMEI within Mobile device SIM cards.
• Practical unlimited value, is capable of being held within the distributed Public Block Chain Ledger, there is no hard protocol limits as there are no limits within the underlying double entry accounting systems. No wealth or money is created within the Public Block Chain Ledger or payments system.

What about Banks
What do financial institutions want?  Cryptographically verifiable settlement and clearing systems that are globally distributed for resiliency and compliant with various reporting requirements.

What role would banks play in a distributed free value transfer world?
Banks can continue with their existing functions, especially in the early stages, but are not a fundamental element of the solution space, especially for sub $10,000 value transactions with SMEs involved in  B2B, C2B and C2C type payments. In fact banks can use these same underlying technologies to bring their own ledgers into the modern digital world we all live in.

They also play a role in the Secure Identification Number (SIN), when there is a requirement for non-anonymous attributes being applied to the SIN, to support a range of commercial payments and regulatory frameworks, but like above this is not a mandatory element of the solution. And other providers will appear over time, like market place "ratings ect) all variations of SIN attributes are supported. One of the objectives is to support payments from people who have no bank accounts and no first world identification today, and are locked out participating in global eCommerce today.
The one palce that banks will still maintain an dominant position is the supply of "cash" most likely via ATM's for the various local communities, we don't envision the total replacement of "cash" and do not see anyone removing the dominance and convenience of ATMs, we would hope that they can be integrated into the free payments network, even if "cash" dispensing will probably never be free.

Banks also have significant risk management expertise, and in many cases this is a requirement of a successful transaction, especially as the transaction value increases.

But banks are optional parties within any payment transaction, it is the participants choice, in any decentralised solution, Opt-in is always the prim objective.

Why Mobile Phones
In many third world countries, without any banking or credit card systems the only technology that exists is a mobile phone.

Many of these countries rely almost entirely on services like "Western Union" to provide universal basic and not free money transfer and payments, western union is the practical "currency" in many countries.

Many developing countries have encouraged mobile phone companies to invest in infrastructure, the story of a home without any electricity, but with a solar charger for their mobile phone is not something unique today. Hence it is an obvious choice to base any global universally available payments system on this infrastructure.

Why the existing RTGS system is broken and cannot get anywhere close to FreeThe answer is obvious refer to the figure below, its nowhere close to KISS..

The Solution, Key Technologies

1. Hardware secured and protected ECDSA, and ECDH keys and key chain ( July 2015)
2. Secure Wallets on mobile devices (mostly available free today, just needs linkage to hardware key chain above).
3. Secure Private Block Chain Ledger (available today)
4. Secure Public Block Chain Ledger (available today)
5. Secure Identification Number(SIN) (complete infrastructure operational today)
6. SIN attributes for non anonymous  transactions (available today)
7. BYOD management for device compromise (available today)
8. BitAuth between key chain and mobile device ( available today)
9. Scaleable, algorithm agile eco-system (available today)
10. Payments protocol (in development)

A new and exciting word is almost here..

Reference Implementation

In the reference implementation, using a commercial hash keyed database, ~10,000 blocks per second could be processed. This is for each of the distributed PBCL nodes within the PBCL's; hence the total processing of the PBCL is practically unlimited. The reference implementation also supported ~ 5,000 read operations, this asymmetry is typical of commercial databases.  The performance is relatively independent of the number of transactions in the distributed PBCL up to the tested 1 Billion transactions. Due to the decentralised nature of the PBCL, this poses no technical transaction processing limitations, and should easily exceed any existing global payments system.

All transactions within the PBCL are atomic, instantaneous and irreversible.

Performance Comparison:

·         Bitcoin 7 tps

·         PayPal 115 tps

·         PBCL 10,000 tps for each BPCL node, unlimited across the global PBCL

·         Visa network <56,000 tps

Storage Comparison

·         Bitcoin, at very high transaction rates each block can be over half a gigabyte in size

·         PBCL typically less than 500 bytes per transaction

References
1. Free hardware generated and protected Bitcoin Private key and key-chain.
2. Identity Theft and the Digital World.
3. Triple Entry Accounting , and Block Chain Ledgers
4. BitAuth, Decentralized Authentication for the mobile digital world


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.