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Blockchain: Real-Time Inter-Bank Fund Verification

Blockchain technology since the early 2000s has witnessed several transformations (small and big) in a few industries. The financial services and products industry, where the movie started, is experiencing another alteration that will make security turn much more effective and robust. This piece will talk about the modification of Real-Time Gross Settlement through the hyper-ledger fabric (HF). The current relationship between the two and the expected (potential) pathway(s) which may get forged-in, in the coming days will be reviewed here. One factor “Trust” among others others is seen as a pillar in decentralized architectures, and how this has assisted in achieving success to date. The accountability aspect is also seen in one of the researches which help in achieving complete accountability and transparency which was a hurdle in an authoritative system.

RTGS also referred to as Real-Time Gross Settlement is one of the most utilized services in banks across the world for inter-bank payment(s) and settlements. Each payment in RTGS takes the form of funds that are administered by the central bank. This particular research provides an end-to-end IBPS prototype built on similarity to the Hyper-ledger fabric enterprise blockchain platform. The proposed model also supports gross settlement, gridlock resolution, and reconciliation for inter-bank payment businesses. Figure 3, 4, and 5 showcase separately the backend functioning of gross settlement, the functioning of the gridlock solution algorithm, and distinct state transitions of a multilateral netting cycle as well. Figure 3 represents the relationship between the off-chain and in-chain queues. The complete cycle which starts from the operator gets processed in-chain and/or off-chain via bank, and finally, the result is received by the user (you).  To bypass inconsistency during the fund transfer process, FIFO off-chain queue is implemented, as showcased in figure 3. One unique feature (among others) in this proposed prototype is that an already present gridlock resolution algorithm cannot get transplanted to the blockchain platform. For a complete and successful transplant, a new resolution algorithm is required with some specific characteristics. These characteristics include:

  1. Privacy-preserving
  2. Equality
  3. Service quality guarantee
  4. Failure handling

Figures 4 and 5 show the appropriate algorithm along with the distinct states which will occur while the process will undergo. With this proposed model, a fresh blueprint of an end-to-end prototype of inter-bank RTGS system having a backing of Hyper-ledger fabric blockchain platform. The next research dwells on China’s Foreign Exchange Trade System and its relationship with X-Swap (credit matching trading system) besides scrutinizing the blockchain’s transformation from its inception day to date.

The internet protocol suite can be said as the foundation for all the modifications that have entered from the technology sector. Figure 1 in this piece of research shows the categorizations about which layer will accomplish what particular type of task(s). From the figure, you may view that data layer encompasses “overlay network”, and “Bitcoin Blockchain”. Protocol layer includes the decentralized protocol(s), above which API (application programming interface) is located. You could say that figure 1 is the forerunner blueprint of blockchain technology. Figure 3 represents the backend functioning of the centralized hierarchy of financial institutions. If you’re one of those interested in knowing the distinguishing factor(s) between the centralized and decentralized functioning model(s), observing and scrutinizing figure 8 and 9 (infographic showcased below) will do the job quickly and without much hustle.

Blockchain Real-Time Inter-Bank Fund Verification – 1

Better accountability, speedy transaction completion (real-time transaction clearing), robust security, etc are some of the factors the proposed prototype is better from numerous perspectives. An illustration of this model is “China Foreign Exchange Trade System (CFETS)” developed X-Swap. In crux, X-Swap can be viewed as the decentralized transaction ledger. To get a better understanding of the X-Swap’s step-by-step functioning, view figure 11. The suggested model has been so accurate that the Industrial and Commercial Bank of China along with the Bank of Communication has already implemented a transaction of standardized rate swap with a transaction volume of around 100 million. The following research gives a decision tree flowchart/diagram which intends to assist practitioners and researchers opt an appropriate technology for their particular use.

One variable that makes blockchain technology stand apart (unique) is its ability to persist while storing records. Attaining the immutability characteristic requires consensus algorithms and cryptographic techniques to achieve it. In short, this piece of research differentiates between the traditional and the blockchain database(s). To pinpoint the characteristics of blockchain in short, you could say they include:

  1. The distributed consensus across the chain state.
  2. Irreversibility of chain state
  3. Distributed data control
  4. Accountability and transparency

Besides financial services, another sector that has experienced enormous benefits is Supply Chain and Logistics. Figure 3(b) showcases one illustration through which blockchain has made the overall cycle of supply chain and, logistics and warehousing as well much simpler, faster and with fewer hurdles. To understand the comparison quickly, table 1 categorically displays the factors that have been taken into consideration:

  1. Trust Building
  2. Non-disclosure of data
  3. Robustness with regards to fault tolerance
  4. Performance
  5. Tautology
  6. Security

The infographic shown below tells you systematically, how the decision tree operates for opting which blockchain is best suited for the specific scenario

bank-fund image

In the present day, with more financial institutions imbibing decentralized technology (the degree of imbibing may vary), more innovative and creative solutions for resolving the trust issue(s) would surely come up soon.

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Last modified on July 18th, 2023 at 2:53 pm