Blockchain technology is entering the financial sector. This is moving at a rapid pace. Now, we have to be mindful of the fact this is not permissionless. What we are dealing with is a permissioned network.
Nevertheless, we are seeing massive moves to embrace this new technology.
Project Ion is now in operation and it processing over 100K bi-lateral equity transactions per day. This is a major step forward.
Depository Trust and Clearing Corporation is one of the largest settlement networks. It handles a lot of the equity trades throughout the world. Much of the focus upon blockchain is the ability to settle things in a rapid manner. We know that, globally, settlements can takes days (or even weeks).
For this reason, these entities are seeking out a different way of doing things. Here is where blockchain enters the picture.
With Project Ion, DTCC believes it is onto the path of upgrading the entire system.
Clearing and settlement house Depository Trust and Clearing Corporation (DTCC) has launched a private and permissioned blockchain network as an alternative settlement platform.
Notice the key words, private and permissioned. This is not how we typically think of blockchain yet it is a major player in the traditional finance world making a move in this direction.
In other words, the bankers are coming and they seek to take over.
Of course, their goal is rather straight forward.
“The goal of Project Ion is to ultimately provide a resilient, secure and scalable alternative settlement service to clients, with the option to leverage DLT for those firms who wish to take advantage of the emerging technology,” DTCC said in a statement.
DLT provides a safer, cheaper, and more efficient alternative to traditional settlement methods, Murray Pozmanter, said in the statement. Pozmanter is the managing director and president of DTCC clearing agency services and head of global business operations.
Basically, they are realizing that distributed ledger technology (DLT) can save them money while providing a more efficient way to settle transactions. This is something proponents of blockchain and cryptocurrency have been espousing for a number of years.
There is little doubt what DTCC is working on is going to work. We are all aware of the power of DLT and how efficient it can be. Those who use Hive truly understand this since it is a fast network that settles in under a minute. With the introduction of One Block Irreversibility, we will see that reduced to just over 3 seconds.
The challenge comes in with who controls the ledger. While DTCC might be using DLT, it is not decentralized. This is a closed system that they control. Whatever partners it decides to bring in are the only ones who will be on chain.
Of course, this brings up the question of whether blockchain is even necessary. Since we are looking at something they are running, the benefits of blockchain, ie transparency and distributed control, is removed. Naturally, this is desired.
We can harken back 5 or more years when IBM was making waves with their talk of "enterprise blockchains". This was nothing but hype since the idea of a permissioned blockchain didn't really add much to the equation. It seems like IBM was just collecting consulting fees for giving companies nothing.
Either way, that idea floundered out. When dealing with existing global financial players, perhaps a distributed ledger could be appealing, even if permissioned. Under these circumstances, when dealing with different players, perhaps having a number of node operators could be beneficial.
Nevertheless, this is still just more of the same. We are dealing with the same layers of control. The key to the future is for the settlement of stocks without an entity like DTCC being involved. They are nothing more than a financial intermediary, something not needed due to blockchain.
Yet, as we know, these institutions are trying to remain relevant. We simply need to keep building outside their reach so that they become obsolete.
This news does show the power of what we are dealing with. Do not underestimate the power of blockchain to disrupt the entire financial system.
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