Building the World’s First Blockchain Depository, ID2S
By Anthony Culligan, Chief Engineer
This week saw the first trades settle live time on the ID2S blockchain CSD. ID2S was built entirely by the SETL team from their Global Engineering Centre in Ipswich in the UK. At the heart of ID2S is the financial grade SETL blockchain. Surrounding this, however, was a project of significant proportion delivered by a team of specialist technicians and financial engineers who know what it takes to put a new concept, such as blockchain, into the heavily regulated and ultra-secure world of financial infrastructure.
I recently attended a conference which brought together regulators, technologist and academics to discuss blockchain initiatives. At that meeting, a central banker made the comment,
‘We have not regulated the crypto currency market because, quite frankly, it’s just not big enough to matter’.
He had a point. The total value of all Bitcoins is $169bn. Whilst this seems a large number, it less than 20% of Amazon’s $987bn stock market value, which is just one stock amongst many in the US equity market, which is just one market of the many international equity markets which, in total, are valued at around $64trillion. And then there are Bond markets which weigh in at $100trillion. On to this you can add, the loan markets, swap markets and other derivatives which, in turn dominate the physical markets.
The fact is that none of the public blockchains have, therefore, been through the regulatory process which is required to meet the standard of operating market infrastructure. SETL is unique in having done that.
In the world of financial services there is a clear distinction between privacy and anonymity. Privacy is a must whilst anonymity is the antithesis of organised financial services. For those that hanker after the latest zero knowledge proof coin, the application is not in financial services. Any blockchain that depends upon an anonymous token to operate is unlikely to meet the stringent regulatory requirements. Identity is both at the heart of the regulation by virtue of international treaties and is an integral part of the technology stack. A significant part of the SETL build was around authentication and identity.
Our everyday lives depend upon properly functioning capital markets. We use banks to make payments for everything from coffee to cars. Banks need investors to buy and hold their equity which allows them, in turn, to issue loans for our mortgages and to companies for investment in equipment and inventory. Imports and exports rely upon FX markets and complex financial guarantees. Putting software into this eco system is a non-trivial exercise. Governments care about who develops that software and who is responsible for its maintenance. One weak link in a chain could expose us all to potential chaos and loss. SETL’s software engineers are required to receive specialised secure coding training and the code that is produced by SETL undergoes independent review. SETL’s responsibility for its code is ongoing and onerous.
The ID2S project sets a new benchmark in the cost and speed of development. SETL’s team put in place a piece of national financial infrastructure in a fraction of the time and at a fraction of the cost which could have been achieved either by the incumbents or by the use of more traditional methods. The use of SETL’s core blockchain as the ledger at the heart of the system means that a standardised approach is taken to the immutable ownership record. It is the same ledger that SETL uses for all its projects and, because of that, is not a separate build each time. The benefit of seeing the commonality between ownership systems is a reduction in their cost.
SETL has built its team from experienced financial services experts. Understanding the capital markets and banks means that SETL is able to design its solutions intelligently and appropriately so there are no surprises in project execution.
Well done to the team in Ipswich on an excellent execution and for delivering a world first!