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",
"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="}]
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