The ledger of the future
Could blockchain technology be the next step in the evolution of ledgers? Dawn Cowie speaks to Charles Cooper, managing director at R3, about the development of this technology.
Distributed ledgers are a shared system of record that many hope will transform the speed, efficiency and security of transferring assets around the global financial system. They have the potential to cut out the middlemen needed to validate transactions; reduce the duplication of record-keeping; minimise transaction errors and increase settlement rates. So is the industry aiming for a frictionless financial market, free from intermediaries? Not exactly.
It looks like the most probable outcome will be that a network of private ledgers will develop, each made up of a group of trusted parties. But even this requires an enormous leap forward in terms of collaboration between the technology providers who will build these private ledgers and the financial institutions who will use them for different purposes. Technology innovation company R3 is at the forefront of pushing for greater industry collaboration – managing director Charles Cooper explains some of the opportunities and hurdles.
Q&A with Charles Cooper
Q: What are some of the data and technology problems that distributed ledgers might solve?
On a broad level, businesses are looking to this technology to enable the distribution, verification and record keeping of transaction information more effectively and quickly in a decentralised manner, leading to both cost and time savings.
Q: What are some of the differences between the ledgers being worked on?
We recognised early on in the process that there was no single platform currently available that was entirely fit for purpose across the financial services industry, but instead we believe that the future of this technology will revolve around a series of networks that have learned how to interoperate.In our lab and research centre we are testing multiple technologies for different uses. As part of Project Genesis we trialled a range of ledger technologies built by Chain, Eris Industries, Ethereum, IBM and Intel. In parallel, we’re building our own ledger solution with an eye towards supporting a variety of commercial products.
Q: Which kinds of business problems are blockchains best used to tackle?
We are looking at products such as interest rate swaps, commercial paper and trade finance, and we have identified payments, smart contracts, clearing and settlement, and static reference data as areas for deeper exploration. These are just initial areas of investigation with more to come.
Q: Can you give a brief history of Project Genesis – what are its aims and how far has it come?
Project Genesis was a trial of unprecedented scale, with 40 of the world’s largest banks operating on five private distributed ledgers using multiple cloud technology providers. We were able to evaluate the individual strengths or weaknesses of each ledger technology when completing a range of identical financial processes.
R3 plans to continue this work with the banks over the coming months to test and develop applications based on distributed and shared ledger technology for the financial services industry. The Lab has quickly become a centre of gravity for collaborative applied blockchain efforts in the financial services and distributed ledger technology industries.
Q: How does collaboration on R&D and testing work in practice?
We realised early on that the key to developing these technologies in a way that would be meaningful and efficient was to work in collaboration with the industry to develop solutions and products, pooling resources rather than spending time and money focusing on individual projects that would then effectively be required to be duplicated across institutions.
The banks in our consortium agree with this approach and are combining their resources and experts in financial technology and markets structure in our collaborative lab environment, allowing us to test and validate results from prototypes and proofs of concept on various distributed and shared ledger protocols. Project Genesis is an example of how well this testing environment works – we were able to have 40 banks operating across five different distributed ledgers which were hosted on multiple cloud providers.
Q: What are some of the hurdles to overcome before banks might start to realise some of the potential cost savings?
Alongside carrying out technology evaluations and testing uses, we want to answer the big questions around the viability of distributed and shared ledgers for financial services. Hurdles that need to be overcome before this technology can be applied successfully centre around the themes of identity, privacy and anonymity. For example, how much information about a trade does each participant need to verify while keeping the contents of a trade private? Other hurdles include scalability, interoperability and integration with legacy systems.