Payments, clearance and settlement in the financial services industry – including stock markets – is rife with inefficiencies because each organization in the process maintains its own data and must communicate with the others through electronic messaging about where it is in the process. Because of that, settlements typically take two days. In turn, delays in settlements force banks to set aside money that could otherwise be invested.
Because it can instantly share data with each organization involved in a blockchain database or ledger, the technology reduces or eliminates the need for reconciliation, confirmation and trade break analysis as key parts of a more efficient and effective clearance and settlement process, according to Accenture.
"It's a very hot topic right now," Zulfikar Ramzan, CTO of RSA Security, said in an earlier interview with Computerworld. "We are definitely getting a lot of inbound inquiries around blockchain and its implication within enterprise environments."
Ramzan said his customers are asking about blockchain for audit logging and or verifiable logs, which is viewed as a reliable way of tracking what happened in an organization to satisfy regulatory auditors. Other RSA customers are interested in it for user authentication to ensure users are accessing the correct digital records at the right time.
By leveraging blockchain technology, the new IIN "will significantly reduce the number of participants currently needed to respond to compliance and other data-related inquiries that delay payments," J.P. Morgan said.
So what is blockchain?
Blockchain is a public electronic ledger – similar to a relational database – that can be openly shared among disparate users and that creates an unchangeable record of their transactions, each one time-stamped and linked to the previous one.
Each digital record or transaction in the thread is called a block (hence the name), and it allows either an open or controlled set of users to participate in the electronic ledger. Each block is linked to a specific participant.
While it natively provides a level of security because blocks cannot be changed, encryption is also added as an additional safeguard against intrusion.
Blockchain can only be updated by consensus between participants in the system, and when new data is entered, it can never be erased. The blockchain contains a true and verifiable record of each and every transaction ever made in the system.
As a peer-to-peer network, combined with a distributed time-stamping server, blockchain databases can be managed autonomously. There's no need for an administrator. In effect, the users are the administrator.
The new IIN was developed in-house by J.P. Morgan and is powered by Quorum, a permissioned-variant of the Ethereum blockchain. Quorum's focus on privacy enables secure data sharing via IIN, the bank said.
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