Blockchain, or distributed ledger technology (DLT), is growing faster than a speeding bullet. After a period of ostracization and criminalization, the technology behind Bitcoin is now being used by the Banking industry.
Regulations Catching Up
According to Central Banking, this Thursday, the South African Reserve Bank (SARB) was awarded the ‘Best Distributed Ledger Initiative’ prize for its distributed ledger-based project – Khokha – by the Central Banking FinTech RegTech Global Awards 2018 at a gala dinner in Singapore.
Lesetja Kganyago, the Reserve Bank Governor, early this year launched the Project Khokha report right after a trial for managing wholesale payments between settlement banks, using the distributed ledger technology.
Following the award, the SARB issued a statement stressing the importance of winning this award. It stated that the award recognized Project Khokha for its innovations held in the financial industry, most precisely, in the central banking, regulatory and supervisory environment.
Up until now the regulation has been left far behind and is still trying to understand how to catch up with this new technology. However, regulators are giving their first steps on the right track to design a legal framework that can workout without stifling the development of the technology.
The project was launched with the intention of accessing the performance, scalability, privacy, resilience, and finality of a blockchain-based solution when put through conditions that resemble the financial reality of the banking sector. The DLT solution was developed in just three months, and its network was built on top of Quorum, a J.P. Morgan enterprise blockchain.
Project Khokha created a blockchain-based platform to be used between participating banks. The goal was to deliver a wholesale payment system, which would be backed by central-bank deposits, thus allowing participating banks to pledge, redeem and track balances of the tokenized sovereign currency (Rand) on use in the ledger. For this to work, each participating bank had to set up its node.
Each of the participating banks would run a node making the network distributed. The project focused mainly on setting specific phases around transaction times, network performance, as well as privacy and security. Even so, the main and ultimate goal of the project was to adhere to the Principles for Financial Market Infrastructures.
When it comes to performance, the DLT solution stood up to the task. It was able to endure scalability tests and simulate real-time gross settlement requirements for potential growth in economies such as South Africa. Security systems also went through a battery of tests as well as the network’s capacity for trading.
Regarding speed times, a benchmark for 95% of transactions to be validated in under a second, and 99 percent within two was set by the bank, and the platform was able to pass the test.
The project was a real success. The network was able to pass all the stress tests it was put through, and transactions were kept within a two seconds range. SARB was also able to maintain a regulatory oversight across the whole network of distributed nodes.