October 12, 2015

Blockchain potential explored

Two major European central securities depositories (CSDs) are investigating the potential of distributed ledger technology for asset settlement and reference data applications. London-based Credits is working with the CSDs on a proof of concept (POC) for the use of distributed ledger technology.

“We are conducting POCs based on the concept of distributed ledgers,” says Nick Williamson, chief executive of Credits, who is at Sibos this week. “In doing so, we are testing the concept around our framework, which is a set of libraries that allows companies to custom-build blockchains.”

The Credits federated blockchain framework can communicate agnostically with other chains and solely act based on information contained outside the ledger. The Credits Blockchain platform is based on a cryptographically secured distributed ledger which enables financial services firms to automate, speed up and simplify the processing of any asset class while reducing settlement, counterparty and custodial risk.

Working with the CSDs on the POC, says Williamson, Credits is identifying anything that might be a “show stopper”, such as capacity throughput or performance. Performance is a challenge for many blockchain applications, he says, and is particularly relevant to financial services organisations. “We have recently demonstrated that we can handle more than 100,000 transactions per second in a test environment. We are looking to improve that,” says Williamson.

The potential of the distributed ledger is that it enables all participants on a network to see the same state of the world at the same time. This is particularly attractive when it comes to reconciliation. “There is a lot of detail and complexity in achieving this, but it will be very applicable for asset settlement and payments. Users can build sets of rules around what is allowed and everyone on the network will see the same thing at the same time,” he says. Also, the view provided by the ledger is the “true state of the world”, a truth that cannot be revoked.

Williamson believes there has been a “huge change in attitude” towards blockchain during the past couple of months, with a great deal of “chatter” and effort on the part of financial institutions to work out where the substance of the technology might be and how they can use it.

by Heather McKenzie