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Understanding Modern Banking Ledgers Through Blockchain Technologies: Future of Transaction Processing and Smart Contracts on the Internet of Money

Part of the New Economic Windows book series (NEW)

Abstract

In this chapter we provide an overview of the concept of blockchain technology and its potential to disrupt the world of banking through facilitating global money remittance, smart contracts, automated banking ledgers and digital assets. In this regard, we first provide a brief overview of the core aspects of this technology, as well as the second-generation contract-based developments. From there we discuss key issues that must be considered in developing such ledger based technologies in a banking context.

Keywords

  • Blockchain
  • Smart contracts
  • Banking ledgers
  • Data integrity
  • Data security
  • Exchange clearing

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Fig. 1

Notes

  1. 1.

    Nakamoto (2008) introduced the first decentralised crypto-currency called Bitcoin, and related technology startups have already attracted more than $1 billion in funding. The currency has been the subject of academic considerations in topics such as privacy (Reid and Harrigan 2013), security Barber et al. (2012), regulation (Peters et al. 2014) and monetary policy (Peters et al. 2015).

  2. 2.

    In the Byzantine Generals' problem, introduced by Lamport et al. (1982), a group of Byzantine Generals are camped around an enemy city in different locations. If they all attack simultaneously, then they have superior firepower to their enemy. The problem is that they need to agree a common battle plan, so that they attack at the same time, with the additional complication that there may be a traitor amongst their ranks.

  3. 3.

    https://blog.ethereum.org/2015/08/07/on-public-and-private-blockchains/.

  4. 4.

    https://www.ethereum.org.

  5. 5.

    https://blog.ethereum.org/2015/08/07/on-public-and-private-blockchains/.

  6. 6.

    https://erisindustries.com/.

  7. 7.

    http://hyperledger.com/.

  8. 8.

    https://ripple.com/.

  9. 9.

    https://erisindustries.com/components/erislegal/.

  10. 10.

    http://www.commonaccord.org/.

  11. 11.

    http://p2pfoundation.net/Legal_Framework_For_Crypto-Ledger_Transactions.

  12. 12.

    http://www.multichain.com/blog/2015/07/bitcoin-vs-blockchain-debate/.

  13. 13.

    Factom whitepaper, available at https://raw.githubusercontent.com/FactomProject/FactomDocs/master/Factom_Whitepaper.pdf.

  14. 14.

    http://cryptoassetscore.readthedocs.org/en/latest/integrity.html.

  15. 15.

    Cryptotechnologies, a major IT innovation and catalyst for change, available at https://www.abe-eba.eu/downloads/knowledge-and-research/EBA_20150511_EBA_Cryptotechnologies_a_major_IT_innovation_v1_0.pdf.

  16. 16.

    Note: the technical note is not representing the direct views of the IMF.

  17. 17.

    https://consensys.net/ventures/spokes/.

  18. 18.

    http://www.ifrs.org/current-projects/iasb-projects/financial-instruments-a-replacement-of-ias-39-financial-instruments-recognitio/Pages/Financial-Instruments-Replacement-of-IAS-39.aspx.

  19. 19.

    http://www.ifrs.org/current-projects/iasb-projects/financial-instruments-a-replacement-of-ias-39-financial-instruments-recognitio/documents/ifrs-9-project-summary-july-2014.pdf.

  20. 20.

    Source: Risk management issues in central counterparty series, presentation by Priyanka Malhotra at the Systemic Risk Centre at LSE.

  21. 21.

    For an example of EU regulation in this area, see http://www.fca.org.uk/firms/being-regulated/meeting-your-obligations/firm-guides/emir.

  22. 22.

    BCG, Shortening the Settlement Cycle October 2012, available at http://www.dtcc.com/media/Files/Downloads/WhitePapers/CBA_BCG_Shortening_the_Settlement_Cycle_October2012.pdf.

  23. 23.

    https://www.fanniemae.com/content/fact_sheet/dvp-dvf-comparison.pdf.

  24. 24.

    http://r3cev.com.

  25. 25.

    http://digitalasset.com.

  26. 26.

    http://symbiont.io.

  27. 27.

    http://chain.com.

  28. 28.

    http://setl.io.

  29. 29.

    www.hitfin.com.

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Peters, G.W., Panayi, E. (2016). Understanding Modern Banking Ledgers Through Blockchain Technologies: Future of Transaction Processing and Smart Contracts on the Internet of Money. In: Tasca, P., Aste, T., Pelizzon, L., Perony, N. (eds) Banking Beyond Banks and Money. New Economic Windows. Springer, Cham. https://doi.org/10.1007/978-3-319-42448-4_13

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