Design Considerations

Transformative Nature

The transformative effect of using blockchain type technology comes from making the settlement process uniform and autonomous. One can think of it as doing for settlement what containerisation did for transportation – it not only set standards for how one part of the delivery chain communicates with another, but also gave rise to radical amounts of automation with associated efficiency savings.

One could envisage a project which takes the existing array of settlement and payment methods and imposes a uniformity across them. This uniformity, however, is not just the messaging layer – it extends to how things are done within the internal workings of the settlement process and how ownership is assigned and transferred. The immediacy of transfer is part of the real prize.

The autonomy of blockchain comes from the use of the public/private key paradigm and the move from trust by reputation to trust by protocol. By linking ownership to the cryptographic ability to unencumber a ledger position, a significant element of ledger management is automated. Further, by devising systems where the verification can be distributed, a system becomes self-auditing. These features are analogous to the automation provided by the cranes and rigs in modern ports – loading and unloading is reduced to a specialised, repeatable and automatic function separated entirely from the content.

Privacy vs Community

Public blockchain systems involve large numbers of participants in the verification of transactions and balances. This allows those participants to see certain details of each transaction – albeit without identifying information attached. One of the underlying of this crypto-currency approach is that where there is no identifying information stored – it cannot be compromised. It has been shown, however, that even without identity being disclosed, behavioral and pattern analysis can uncover information the participant thought was private. There are a range of countermeasures that participants can take to make it more difficult – such as frequently changing public keys – but the possibility of this sort of compromise is a feature of the data being widely distributed.

In a traditional financial services approaches, this problem doesn’t occur because data is distributed along trust lines – only those with particular trust rights are recipients of data at all. SETL approaches the privacy design along the same lines by employing a permissioning system as a separate layer. Any user request via the user interface or those via APIs must go through the permissioning layer which enforces the trust rights for every request. Thereby, only the rightful owners of data and permissioned users are able to receive or see that data.

Design for Financial Services

The approach taken by SETL – Segregated Permissioned Blockchains – is designed specifically for financial services. Interoperable blockchains with a range of mechanisms and rules will work together with each being adapted to the participants and their specific requirements.

SETL utilise many of the core cryptographic elements that are used in public blockchain world – such as public/private key based identity and Merkle proofs – and fits them into a design based upon regulated environments. The result is tailored and suited to its environment rather than trying to adapt public blockchain technology which is fundamentally designed to avoid regulation.