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The Bahamas Plans to Become a Leading Blockchain Hub

An NGO in collaboration with some institutions announced plans to establish blockchain developers in the Bahamas. The group also aims to place the Island at the forefront of distributed ledger technology (DLT) adoption.

A Leading Blockchain Hub in the Caribbean

According to The Nassau Guardian, an NGO known as the Caribbean Blockchain Alliance (CBA) is seeking to establish a group of decentralized technology developers in The Bahamas. In a press release, Stefen Deleveaux, founder of the CBA, talked about the inherent opportunities found in decentralized technology.

The founder further explained thus:

Blockchain technology is seen as the next step in Internet and financial technology, in what many describe as Web 3.0. There is a huge opportunity to use this technology to improve public and private services in this country. In addition, competent blockchain developers are in high demand, in an industry that almost guarantees access to a high-income job or potential project.

Deleveaux also said that part of the objectives was to build several cohorts of DLT developers. The CBA founder also recognized the importance of blockchain technology in software infrastructure as the reason for the groups.

Furthermore, Deleveaux announced a collaboration involving Inter-American Development Bank (IDB), CBA, Blockgeeks, and the University of the Bahamas. These four institutions would host a hackathon. Also, twenty-five Bahamian citizens would partake in a course for decentralized technology developers, from November 30 – December 1, 2018.

The press release further stated that after the course, students would get a certificate recorded on the decentralized technology.

Michael Nelson, who serves as IDB’s Chief of Operations, added that the bank seeks to empower Bahamian citizens. With the collaboration and the incentives in place for DLT developers, Ameer Rosic, the CEO of Blockgeeks, believes that the Island could be “the blockchain hub of the Caribbean.”

Island Governments Adopting Cryptocurrency and Blockchain Technology

Blockchain technology and cryptocurrency adoption are recording high among Island governments. Some of these countries go further to aspire to become “blockchain Islands.”

Towards the end of the second quarter, the Bahamas announced plans to issue its digital currency. According to the Island, a state-owned virtual currency would help to improve its economic development and eliminate barriers.

Malta, another DLT-friendly country, is at the forefront of decentralized technology and cryptocurrency adoption. Popularly known as the “blockchain Island,” it was the first country to have a holistic legislative framework regulating DLT technology.

Furthermore, Malta introduced the Virtual Financial Assets Act (VFA) and the Innovative Technology Arrangement and Services Act (ITAS). Both Acts would regulate virtual currency and decentralized technology.

However, Marshall Islands’ plan to adopt cryptocurrency isn’t receiving complete support. President Hilda Heine’s announced moves to create a virtual currency that would act as a legal tender but received a “no confidence motion” from some of the country’s senators. The IMF and the U.S. also disagreed with the president’s plan.

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Infinity's End? $31 Million NEX Project Could Be Biggest Casualty of DLT Cuts

Project Infinity, launched in May 2017 by NEX Group (formerly ICAP), could be the biggest bloodletting the distributed ledger sector has seen to date, having cost roughly $31.7 million and hemorrhaged dozens of jobs, former employees say.

Spearheaded by Jenny Knott, former head of NEX Optimisation, the project had a grand vision of bringing the company’s entire post-trade services portfolio onto one interoperable blockchain architecture. However, NEX issued a profit warning in October 2017 and just two weeks later Knott left the company.

In a blow for the nascent project, the results statement specifically said the investment in blockchain had reduced margins by 4 percentage points.

Sources say a deal to sell the business to CME for $5.5 billion, announced by NEX boss Michael Spencer in March 2018, was a driver in the cost cutting at the firm.

A former NEX executive, who spoke on condition of anonymity, told CoinDesk: “They scaled it back significantly. [Spencer] was not going to invest another penny that wasn’t going to get him short-term revenue.”

A blockchain industry source who said his company had been hiring former staff from Infinity, went further, alleging the project had not just been scaled back but had actually been “canned.”

“They got rid of Knott and then they quietly canned the project about two months ago; 47 out of 50 staff were fired,” said the source.

CoinDesk spoke to five former NEX employees, who all confirmed the extent of severe staffing cuts, if not the specific figures. One reported that, in his particular division, nine out of 10 jobs were lost, adding that there were a few divisions like his; another affirmed the figure.

“The people doing the strategic work mostly all disappeared,” he said.

In terms of the spiralling cost of the project, one former employee said NEX made a mistake when it decided to make Infinity a “program,” which brought added costs and expectations.

“When you make something into a ‘program’ it means hiring all these people who plan things and do tons of spreadsheets and so on,” said the former employee.

“There was an enormous group of people doing business requirements, managing user groups for opinions. Some of that stuff is necessary, but not at the scale it was done,” he continued.

Another cost factor related to Traiana, the division of NEX most closely linked to the project, they said, which was doing a upgrade of its infrastructure that ended up on the project’s books, thus increasing perceived costs.

It’s alive

Still, NEX itself is disputing the claims of former staffers.

Andres Choussy, CEO of Traiana, said Project Infinity had absolutely not been shelved. On the contrary, he said it has entered the execution stage in a live environment with blockchain builder Axoni. However, he admitted the project had been scaled back.

“[Infinity] had a vision; the vision is a sound vision which we still would love to try and get to one day. But we are being realistic,” said Choussy.

“You see this from a lot of the DLT initiatives, moving the market into something completely new is not an easy task, so what we have done is focused our efforts into specific applications, specific use cases that really are plan-driven,” he said.

NEX could not comment on the number of jobs shed at the project, but confirmed the number of staff involved had been reduced. No specific numbers were provided by the company.

Choussy said the DLT part of the project had been narrowed down to focus on post-trade FX.

Indeed, NEX was a returning investor in the recently announced Series A funding round in Axoni, which is said to be building “a massive FX post-trade data network.”

NEX is also an investor in DLT provider Digital Asset and was one of the early members of the Utility Settlement Coin (USC) project, although a source involved in USC said they have fallen out of communication with the group.

Blockchain blues

A former engineer on the project painted a picture of the tough challenge to meet the use case requirements with DLT, followed by a missed opportunity to get a product out the door.

Axoni was selected at the outset because it provided a unique partitioning capability that few of the other vendors out of the box did, said the former NEX engineer. Throughput had been an issue to begin with but transaction processing speeded up as the project evolved, he said.

In addition to the work done with Axoni, the engineer said a Hyperledger implementation was built which achieved privacy partitioning by creating different networks, as well as an internally constructed ledger, “basically a glorified replication scheme, but with cryptographic proofs and enforced privacy controls” which could handle very high throughputs.

“We were really right at the razor’s edge of getting this stuff out the door when there was a just a massive set of layoffs and the entire team in London was let go,” he said, adding:

“The politics around the situation changed, also the company was preparing to try to make things look good for the CME acquisition.”

Machine learning

Infinity’s DLT architecture was to anchor and immortalize an extremely rich data set coming from multiple parties – brokers, banks, buy-side – which would serve as a backbone for a one-stop financial cloud offering machine learning and AI as a service on top.

In the end, this became a stinging irony. An anecdote recounted by one former employee told how the day after the entire machine learning team was laid off, Spencer returned from Davos enthused about machine learning and AI and asking what NEX was doing in that area.

A proposal for a firm-wide AI strategy was even put together, said the ex-staffer.

Opinion seems to be divided about how well the remains of Project Infinity’s blockchain might fair once NEX becomes the property of U.S. exchange giant CME. The former NEX technology team member said the original vision of an all-purpose post-trade ledger with data analytics platform still has great value and may even be the “crown jewels” in CME’s eyes.

However, the former executive was doubtful about Infinity’s progress, saying, “CME have got their own distributed ledger strategy.”

CME Group declined to comment when reached.

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UK Government Pilots Blockchain in Bid to Secure Digital Evidence

The U.K. Ministry of Justice is investigating blockchain as a possible tool for securing digital forms of evidence, its deputy director said Thursday.

The idea is that the technology can be used to simplify court processes for handling digital evidence, according to Balaji Anbil, who is also the head of digital architecture and cybersecurity at the Justice Ministry.

The agency involved in the test is Her Majesty’s Courts and Tribunals Service (HMCTS), and according to Anbil, a working group focused on the tech recently held its first meeting on the matter.

In the Thursday blog post, Anbil explained that “as an architectural style, distributed ledgers enable new innovative data solutions that support both high degrees of integrity and [decentralization].”

Anbil added:

“At HMCTS, we are passionate about the application of novel solutions to traditional challenges including evidence sharing, identity management and ensuring citizens have maximum control over their own information. Our service designs are focused on value, simplicity and use of the best modern technology approaches. This brings numerous benefits including cost effective and timely delivery and future proof solutions.”

Anbil explained that the technology has already been used by some European Union member nations, highlighting Estonia in particular as a country which “developed innovative citizen identity management solutions using blockchain.”

The post also noted that HMCTS will trial the technology for “inter-agency evidence sharing” later this year.

Last November, Alistair Davidson, a technical architecture lead at the Ministry, outlined the use case in a separate blog that, at the time, did not indicate that the U.K. government was moving ahead with an actual pilot.

“This property of distributing trust could be genuinely transformational in situations where public trust of government might not be taken for granted,” Davidson wrote at the time.

HMCTS image via / Shutterstock

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Thailand's Central Bank Is Developing a Digital Currency Based on R3 Tech

The Bank of Thailand (BoT) has announced it expects to complete the first phase of a proof-of-concept trial for a central bank digital currency (CBDC) by March 2019.

The Thai central bank said in a release on Tuesday that it has partnered with eight financial institutions in the country in a bid to create a CBDC based on Corda, a distributed ledger technology (DLT) platform developed by the enterprise-focused consortium startup R3.

The ultimate goal of the effort is to use the digital currency to facilitate interbank transactions and to “enhance efficiency of the Thai financial market infrastructure,” according to the announcement.

To assist with the so-called Project Inthanon, the BoT has signed up R3 as technological partner and eight other participating institutions, including Bangkok Bank Public, Krung Thai, Siam Commercial Bank, Standard Chartered Bank (Thailand) and HSBC.

“Project Inthanon Phase 1 is expected to be completed by the first quarter of 2019 after which the BoT will publish a project summary accordingly,” the bank said in the announcement.

It continued:

“Building upon the findings and outcomes from Phase 1, the project participants aim to further develop the capabilities of the prototype for broader functions including third party funds transfer and cross-border funds transfer.”

The central bank’s governor first revealed the initial concept for the project in a speech in June, commenting at the time that the aim is to explore the potential of blockchain in facilitating cross-bank transactions before it can be formally launched at a larger scale.

With the launch of Project Inthanon, the BoT joins a growing group of central banking authorities to have started trialing DLT systems to facilitate interbank and cross-border transactions, including the Hong Kong Monetary Authority and the Bank of Canada.

The BoT also said in the release that it is currently conducting another DLT proof-of-concept designed to boost the efficiency of government bond sales.

Thai baht image via Shutterstock

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The Trick to Selling Blockchain Solutions? Don't Say 'Blockchain'

When Adrian Patten, co-founder of FX blockchain project Cobalt, pitches to banks these days, he chooses his words carefully.

In a move that may do much to validate Gartner’s finding this week that blockchain hype cycle is entering the so-called “trough of disillusionment,” Patten admitted he rarely brings up the technology, choosing instead to focus on the cost savings Cobalt can bring without the benefit of some of the most popular buzzwords of the last few years.

“We try not to mention blockchain or DLT too much in case it complicates matters,” he said.

In Patten’s view, many financial firms have taken a “me too” approach with blockchain, exemplified by things like the herd of banks joining the R3 consortium. In addition, most are probably invested in too many proofs-of-concept, he said.

“They tend to think, if everybody else is in it, they ought to be in it, just in case a board member asks them what they are doing in blockchain,” he continued.

The result is that people have rushed into DLT looking to use the technology rather than considering its process requirements, message requirements and whether it actually works, added Patten. But Cobalt, which created custom distributed ledger tech for its particular post-trade use case, is not alone.

There are other companies out there with live systems that are actually doing stuff, such as Baton Systems, also in the FX space with DLT, but who are using it less publicly, or at least not letting the technology dominate their messaging.

Seeing successful firms without blockchain front and center could be viewed as refreshing, or perhaps a source of misgiving. Forrester Research projects there will be a pruning, with 90 percent of blockchain projects with a flabby business focus ultimately shutting down in the coming years.

As such, Martha Bennett, principal analyst at Forrester, went so far as to say that those who persevere will likely come to understand that succeeding “isn’t really about technology, but about business.”

After the gold rush

Ready to embrace the disillusionment, some firms don’t mind even admitting they used the term “blockchain” when in fact they were using some of its key elements, without the hype mantle, for quite some time.

Back before the bitcoin white paper was released, Guardtime was developing its Keyless Signatures Infrastructure (KSI) which uses concepts like linked time-stamping (integral to bitcoin) to eliminate the need for trusted third parties or cryptographic keys to verify data.

As the blockchain gold rush gathered pace around him, Guardtime CEO Mike Gault said he got caught up with the perceived benefits of aligning his company with the blockchain movement.

“We called ourselves a blockchain company unashamedly. We were sitting in conferences listening to all this blockchain mania starting to happen and we looked at each other and said, ‘Wait a minute, isn’t this what we do?'”

Guardtime, which boasts a broad range of users from shipping giant Maersk to the U.K.’s NHS (National Health Service), is very different from ethereum, noted Gault, but the end result is the same: a single source of truth and immutability.

Gault also derided “crypto zealots who think everything has to be decentralized,” a view which he says is “totally irrelevant for enterprise.” “We will have no problem doing a quick marketing switch when ‘blockchain’ becomes a negative, in order to return focus to our own category of KSI technology,” Gault continued.

“There will be a turning point, especially in enterprise where there are zero production use cases. People are going to see the emperor has no clothes,” he said.

Cobalt’s Patten also thinks the space is being driven in a wrong-headed fashion by “evangelists and fundamentalists.”

“The idea that every message and every part of a life cycle is going to be encrypted and decrypted when it already exists in hundreds of databases in clear text format is somewhat naive,” he said.

Taking a hard-headed business approach, he called Cobalt a product rather than a project and said, “Unless we are cutting costs by 80 percent, people are not going to move away from incumbents. We have to be much cheaper and better.”

A bank’s perspective

So how does the idea of side-stepping the blockchain evangelists resonate with a bank’s blockchain department? Turns out, the sentiment appears to be trending.

“That is exactly what we would like to see,” said Ville Sointu, head of emerging technologies at Nordea Bank. “It should be business first. We have now moved to a phase where indeed we should see more companies coming up with a clear business case and having the fact that it’s a blockchain or a DLT network in the background.”

Sointu is perhaps not a typical blockchain evangelist, however.

After being brought in at Nordea midway through last year, he gathered the blockchain team under one roof and shut down almost all the prototyping. Nordea has narrowed its efforts down to We.Trade, plus a real estate pilot with the Finnish government, and a corporate identity blockchain, which has now passed the proof-of-concept stage.

“I don’t think we need another proof-of-concept for something like KYC,” said Sointu. “We don’t need another international payments PoC; we don’t need another FX PoC. These things have been proven.”

Asked if he has started to see a trend where fintech vendors mention the business case first and blockchain second, Sointu said, “Maybe this is a call to action. But right now we don’t see too many of those.”

“Ninety-nine percent of the companies that come to talk to us say, ‘We have the world’s most scalable blockchain network and here are 100 use cases that we can use the technology for,'” he said, concluding:

“Those are not helpful at all for us.”

Silent businessman image via Shutterstock

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A Solution to China's Pharma Woes Might Be a Blockchain Away

A still-evolving vaccine scandal in China prompted a range of social media discussions in the past week around how blockchain could have prevented such a situation – or how it might be used to stop it in the future.

To recap, ChangChun Changsheng Bio-technology, a pharmaceutical firm based in Jilin, is accused of having sold about 252,600 units of questionable DPT vaccine, not long after this Shenzhen-listed public firm was found forging data on about 113,000 substandard rabies vaccines, according to a report from the South China Morning Post.

Notably, this is not the first vaccine-related scandal occurred in China in the past year. Several pharmaceutical companies have been involved in producing and selling a great number of DPT vaccines, and a majority of them remain unpunished to this day.

There’s little doubt that the latest exposure of wrongdoing has caused yet another outcry among the public and the scandal-plagued pharmaceutical industry. At its heart, the snowballing problems have raised a core question: how can Chinese families protect their kids and themselves?

The idea that blockchain could allow for the more efficient dispersal of data about vaccines spread soon after the rabies vaccine scandal broke.

A computer programmer under the username @wstart arguably got the ball rolling on V2EX, a Reddit-like online community. According to his post, after spending about 14 hours on data mining and coding, he was able to locate problematic vaccines in 30 provinces.

During the process, he explained, it became apparent how surprisingly difficult it was to gather all the information he needed, with some still remaining unavailable or unsearchable.

And that’s when the crypto community in China started to come out and highlight blockchain as a possible solution.

Chaining data

As CoinDesk reported Monday, Xiaolai Li, one of the best-known of the country’s crypto investors, was among the first to have sparked the discussion about blockchain adoption in the pharmaceutical industry.

In his WeChat article, the crypto investor argued that the technology could help offer visibility as medicines move through the supply chain – that is, as they transported from the facility at which they are made to the hospitals that distributed them.

According to anonymous commentary which appeared on Jianshu, a blog site in China, the author said that blockchain has largely been “demonized” by many people because of the many token sale scandals (China banned ICOs in 2017).

But people should also remind themselves that blockchain itself is only a technology, the anonymous poster argued.

And the idea of Chinese firms using blockchain for supply-chain purposes isn’t exactly new. Companies like and Walmart are already applying the tech to tracing food shipments, for example.

Zhipeng Cheng, a financial commentator at China Finance Online, a China-based financial information company, offered a more detailed plan on how blockchain can be used in the pharmaceutical industry in an op-ed from earlier this week.

By using blockchain technology, he said in his article, the National Institutes for Food and Drug Control (NIFDC) can form a public chain for its inspection technology and share its technology for vaccines tracking. Institutes and organizations can apply and participate in the public chain, he argued.

Though just a technology, Cheng said that he believes the country should “embrace blockchain and put it into practice.”

From ideas to practice?

Local news stories suggest that movement toward this is already taking place.

Beijing News, a Beijing government-backed news outlet, reported on July 24 that several blockchain firms in China are already responding to the growing chatter about making vaccines safer and have responded by putting keywords like “vaccines” and “embed vaccine on chain” in their social media accounts.

Yet not everyone seems so enthusiastic about the concept.

The question “can a mathematical algorithm really solve a trust crisis?” was posted by a commentator on DoNews, a technology news website in China, earlier this week.

As they argued:

“Blockchain technology cannot put an end to the production of the problematic vaccines, and it would even be hard to change the status quo – because the operation of this industry is deeply centralized. It is simply an abysmal ‘black box.’ Nobody can really be sure about the trace of the internal operation until any serious problems leak again. Once that happens, its “system” would give you some sort of ‘data’ which would make you feel stupid.”

The author then concluded that blockchain is only a technology, which will not solve the much more complicated social issues that deeply rooted in Chinese society.

Another article from July 23 appeared on Zhihu, the Chinese version of Quora, also doubted the feasibility of the blockchain adoption from a more technological side.

People cannot guarantee “the authenticity of the original information,” the author argued. “For example, the information of the vaccine production can be false even before it gets on the chain.”

Indeed, at least one startup has attracted the interest from regulators regarding a claim that it is putting together a blockchain platform for this purpose, as CoinDesk previously reported.

Censorship at work

The examples show that there is an earnest discussion taking place within China’s social media ecosystem on this dilemma.

But the ever-present issue of state censorship makes it difficult to get a firm grasp on how detailed the conversations have been beyond news outlets and blog posts and the comments that accompany them.

On Weibo, for example, no results are shown when searching the keywords “blockchain” and “vaccine” – an indication that those posts are being masked. Yet notably, it may be blockchain itself that helps enable conversations the one taking place around the vaccine issue.

The original article – dubbed “the King of Vaccine,” which unveiled the newest scandal – is currently blocked on Chinese social media. Yet someone has permanently recorded it on the ethereum blockchain, as shown on Etherescan.

As this post on, a China-based crypto online community, explained:

“At 2.49. 54 (s) a.m. July 22, 2018, an article named ‘the King of Vaccine’ has been permanently recorded on Etherescan at 6007493. It might just be a small step in the blockchain world. Someday, it might become a huge step in the human history.”

Vaccination image via Shutterstock

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Shanghai Stock Exchange: New Regulation 'Crucial' to Clear Way for DLT

Shanghai Stock Exchange (SSE), one of the world’s largest securities trading venues by market capitalization, is eyeing the use of distributed ledger technology (DLT) in the securities market.

The SSE published a research paper on Tuesday, which analyzed the use of DLT in various stages of a security transaction, such as the pre-trading customer registration, securities issuance and trading, and post-trading settlement.

It went on to summarize some key benefits of adopting DLT in China’s financial infrastructure, such as increasing the settlement efficiency by replacing the current T+1 model, under which a transaction can only be settled one business day after an order is executed.

As the world’s fourth largest stock exchange with a market cap of $5.12 trillion as of December 2017, the SSE is a non-profit organization directly administrated by the China Securities Regulatory Commission.

With references to existing works focused on the topic carried out by its counterparts in other financial markets such as Hong Kong and Australia, the SSE identified two potential areas in the report where DLT may be beneficial in China, stating:

“A general worldwide consensus is that DLT will be a new revolution for the financial industry. The first application use cases will be over-the-counter securities issuance and trading, as well as order book post-trading settlement.”

That said, the research paper suggested that a potential deployment of DLT at the Chinese stock exchange could still face a series of regulatory hurdles, as it is in conflict with the current centralized registration and settlement system.

For instance, the SSE currently uses a third-party intermediary as custodian and for settling post-trading transactions, yet the use of DLT could fundamentally eliminate that system. To do that, the market needs new legal framework issued by regulators and central government agencies.

The paper’s author concluded:

“Regulation should adapt to the evolving technology. We suggest regulators treat the topic of DLT as a crucial study area moving forward … in order to develop a solid regulatory framework for embracing the financial innovation.”

Shanghai Stock Exchange image via Shutterstock

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UK Watchdog Welcomes First Crypto Startups to Regulatory Sandbox

For the first time, the U.K.’s financial regulator is directly recognizing the potential of blockchain-related startups.

For the latest and fourth cohort of startups for its regulatory “sandbox,” the country’s Financial Conduct Authority (FCA) has given access to 11 blockchain and distributed ledger technology-related companies – almost 40 percent of the 29 accepted.

The regulator received 69 applicants in total, of which 40 did not make the group, according to an FCA announcement last week.

The regulator said:

“We have accepted a number of firms that will be testing propositions relating to cryptoassets. We are keen to explore whether, in a controlled environment, consumer benefits can be delivered while effectively managing the associated risks.”

Most notably perhaps, 20|30, one of the 11 blockchain firms, will be partnering with both the London Stock Exchange Group and Nivaura, a London-based financial service company, to build a DLT-based platform to allow “companies to raise capital in a more efficient and streamlined way,” according to its description in the FCA post.

The platform will reportedly facilitate the primary issuance of an equity token based on ethereum to investors.

“The next step will be to offer secondary transfers. Then we can work our way up the ‘capital stack’ to reinvent private equity and, public markets,” Tomer Sofinzon, co-founder of 20|30, told the Financial Times.

The FCA’s regulatory sandbox was launched in June 2016 with the goal of allowing businesses to test “innovative products, services, business models and delivery mechanisms” in the market with FCA’s temporary authorization.

London image via Shutterstock

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Bitcoin, DLT and Bank Ledgers: A Central Banker's View

Yao Qian is the director-general of the Institute of Digital Money of the People’s Bank of China.

This article represents his personal, academic opinions, not those of the institution.

Bookkeeping refers to the recording of economic data in account books.

A ledger, therefore, is a book with a certain format based on original vouchers and recorded in sequence for all economic transactions. The original vouchers are those obtained when business occurs or is completed to record or prove the evidence of the occurrence or completion of the economic business.

It is the original data and an important basis for accounting, reflecting the most primitive transaction information. It is also key to clarifying economic responsibility.

Ledgers are kept in various material, traditionally, in paper form. But with the development of information technology (IT), ledgers have gradually been digitalized and various types of accounting databases have emerged. Indeed, accounting computerization has become the main tool for accounting work today.

The emergence of distributed ledger technology (DLT) may be another major leap forward after the digitization of ledgers. In the proof-of-work mechanism, miners complete the bookkeeping process for transaction records through “mining” and provide a publicly visible decentralized, shared ledger for each node of the network.

Each blockchain is a ledger, and there is no essential difference in the accounting sense from the traditional ledgers. However, from a technical point of view, the DLT ledger not only inherits the traditional bookkeeping philosophy, but also has incomparable advantages thanks to certain innovative aspects.

As such, DLT can play an important role in addressing some acute problems regarding corporate ledgers, country ledgers and industry ledgers.

A shared philosophy

The traditional model for bookkeeping is based on accounts.

In accounting, an account is set up according to accounting categories. It is used to record the increase and decrease of account elements and to reflect the result of the changes. In terms of system implementation, an account is the carrying body of a series of service agreement. An account can contain a variety of products and services. The balance of the account is changed as a result of recording, aggregating, categorizing and consolidating of the original transaction data from the products and services.

Traditional e-payments are achieved through changes in the balance of accounts opened at centralized institutions, relying entirely on the behavior of the central agency. In contrast, the bitcoin system uses another new model in bookkeeping processing: the UTXO (unspent transaction output) mode.

From the perspective of economics, a UTXO is essentially a claim on future value based on public consensus.

Specifically, when a transaction is completed, each node forms a consensus on the transaction behavior and its results. The consensus confirms that the seller, after selling the goods or services, obtains the right to buy the same valued goods and services from other sellers in the future. This future value-claiming right is widely accepted with no objection and is used in the next transaction for payment and is refused by no one.

The necessary and sufficient condition for obtaining this right is that there must be a corresponding transaction that has obtained the consensus between the nodes. With related terms, the input of a transaction (input) is required for getting the output of the transaction (output).

Inputs and outputs

The blockchain system underlying bitcoin describes and completes the transfer of future value-claiming rights arising from transactions by constructing transaction inputs and transaction outputs that contain unlocking scripts and locking scripts. The input of a transaction is the hash value and the output index of the previous transaction, indicating that the transaction input corresponds to the previous transaction output.

The output of this transaction contains a locking script which will be unlocked by the unlocking script of next transaction in the future. The owner of the future value-claiming right constructs an unlocking script through the bitcoin transaction verification engine to prove his right in the transaction, and then transfers this right to the next entity by locking script, and so on. The unlocking script and the locking script are connected into a continuous value circulation chain.

The bitcoin blockchain does not require an account, but completes the “value” transfer through its UTXOs. UTXOs play the role of “currency.”

In fact, the essence of currency is a future value-claiming right that is widely recognized by society. A UTXO, then, is a kind of future value-claiming right obtained by consensus of the participants in the blockchain network, which is closer to the essence of currency.

However, it plays the role of a trading medium and performs a payment only within limited consensus.

The bitcoin system also stipulates that UTXO ‘s price unit is a “satoshi” and that a Satoshi is equal to one bitcoin in order to make UTXO perform better as a currency.

This is the essence of bitcoin. Bitcoin is a kind of value symbol or value unit that represents the future value-claiming right of a certain value on which a consensus has been reached.

UXTOs and accounts (differences)

When applied against other blockchains, we can understand more about this approach.

A UTXO is a form of value transfer completely different from an account, but the two things do not conflict with each other. In a sense, we can understand the blockchain as a transaction “journal account,” which immutably records all the transaction information by means of encoding.

In reality, the account information we are accustomed to is also the secondary processing of information on a transaction’s “journal account.” It is only that UTXO, through the design of the unlocking script and the locking script, concatenates a transfer and distribution channel for the future value-claiming right between the transactions with different timing. UTXO information and transaction information are unified.

Therefore, using the traditional account processing ideas, the value expressed by the UTXO forms can also be converted into that expressed by the account forms.

For example, the account balance in a bitcoin wallet is the result of the aggregation calculation of its UTXOs. Ethereum, on the other hand, introduces a traditional account based on the blockchain, and describes the process of trading on the account as a state transition function.

In this way, the state is composed of objects called “accounts,” and state transitions that transfer value and information between accounts. Each account is a 20-byte address, which can be trader’s address or the contract’s address. Through the state transition, the system automatically calculates the balance of each account.

Obviously, this is no different from the account processing originally undertaken by the central agency, except that the agency has been changed to the algorithm code. Thus, following the UTXO mode, in a DLT ledger, the account mode similar to the traditional ledger appeared.

Balance and flow

Balance and flow are two important concepts in accounting.

Balance refers to the amount of a variable at a certain point in time. Flow refers to the cumulative change over a period of time. The balance sheet reflects the “financial status” of a company on a specific balance sheet date, including the actual amount of the company’s assets, liabilities and the owner’s equity.

The cash flow statement reflects the “cash flow” of a certain accounting period of the company, and the income statement reflects the “business results” of a certain accounting period of the company.

Therefore, the statement of asset and liability is the balance accounting of the company’s economic information and is a “snapshot” of the company at a specific point in time. The cash flow statement and the income statement are the flow accounting of the economic information of the company and reflect the changes of the company during a specific period. The commonly seen periods include the month, quarter, half year and year.

The balance is static and reflects the status quo, and the flow is dynamic and ongoing. The two are linked to each other and can be converted into each other: (opening balance + increase in current period – reduction in current period = ending balance).

Among them, the balance at the beginning and the end of the period are balance. The increase in the current period and the reduction in the current period are flows.

The analysis of financial statements needs to not only analyze the financial status of a company at a certain point in time in terms of balance, but also compares with historical data, analyzing the changes in the financial status of the company and the reasons behind it in terms of flow, so as to provide a more thorough understanding of the financial situation of the company

Mix and match

As mentioned above, in essence, the UTXO mode immutably records all transaction information by means of encoding, and it is a mode of flow accounting.

Reduced by aggregation, UTXOs can be converted to account balances, and by splitting the account balance the UTXO result can be obtained. In computer terms, we can describe the conversion between UTXO and account as a split/map/reduce architecture. From UTXO to account, it is the process of map/reduce.

When a miner verifies and packages each transaction, it is map, which verifies and updates each UTXO, equivalent to generating a new key-value pair. The process of reduce is shifted to user’s wallets, and each UTXO is aggregated, thereby obtaining the fund balance based on the concept of the account in the user’s wallet.

From the account to UTXO is a split process, this work also occurs in user’s wallet. After receiving a currency transfer request, the wallet needs to split the transfer amount and quote multiple UTXOs as transaction input.

Compared with account mode, the advantage of the UTXO mode is that it is easy to parallelize and improve efficiency. However, the UTXO mode needs to store all flow information, and data storage burden is high. The account mode only requests the current balance information and ignores all flow information, but the premise is that the current balance information is reliable.

From a regulatory point of view, the UTXO mode stores all flow information and is more conducive to supervision and auditing. Still, it should be said that bitcoin’s UTXO model is rather extreme in that it removes the concept of an account in a sense.

However, UTXOs and accounts have their own advantages and disadvantages, and the two models can be integrated to show their respective strengths.

For example, in order to speed up synchronization, one can introduce an account in UTXO mode (ethereum is a typical example). For concurrent processing, account mode can refer to the UTXO concept to split accounts, that is, different departments create different accounts. the same user has multiple accounts, and the transactions of the respective accounts can naturally be processed in parallel.

After processing, the balances of all the accounts are added to obtain the total balance. Just as traditional bookkeeping accounts for both balance information and flow information, the integration of the UTXO model and the account model provides information demanders with more complete, three-dimensional ledger information, and is becoming the current trend in the development of DLT ledgers.

UXTOs and bookkeeping

A systematic exposition on the principle of double-entry bookkeeping was first presented in 1494 by Luca Pacioli an Italian, in his paper “Summary of arithmetic, geometry, proportions and proportionality.”

Double-entry bookkeeping is based on the equality between the asset amount and the amount of equity plus liability. It is a method of bookkeeping that, for every economic activity, records the corresponding changes in two or more linked accounts, thus systematically reflecting the result of fund movement.

A decrease in one account, there is an increase in another account, the debit and credit must equal. Taking capital as an example, the borrower is the receiver of funds, and the lender is the source of the funds.

If there is a spending of fund, the fund must come form somewhere. The “debit equals credit” means that the amount of the money spent equals the amount of the money deducted from the source. The double-entry bookkeeping method scientifically obtains important information on economic transactions and business results from relevant documents and creates a perfect bookkeeping methodology for the formation of modern enterprises and business society.

German philosopher Goethe praised it as “one of the wonderful creations of human wisdom, every shrewd businessman engaged in business activities must take advantage of it.”

Interestingly, like traditional account processing, UTXO ‘s processing also includes a bookkeeping philosophy of “A decrease in one account, there is an increase in another account, the debit and credit must equal.” The manifestation is that if UTXO has a transaction output, there should exist a transaction input, and if there is a transaction input, there should exist a transaction output.

The amount of transaction input should equal to the amount of transaction output, consistent with the connotation of, “A decrease in one account, there is an increase in another account, the debit and credit must equal.”

DLT ledger improvements

With this context, we can examine the benefits of distributed ledgers.

  1. Hard to forge, difficult to falsify, highly efficient, traceable and easy to audit

    Traditionally, both paper ledger and electronic ledger are easy to forge and falsify. And the accounting process from the original voucher to the accounting book is error-prone.The UTXO of blockchain technology is designed through sophisticated data structures such as hash functions, time stamps and Merkle trees, supplemented by cryptography and consensus algorithms, to achieve the unforgeability and immutability of historical transaction records, and uses algorithm functions (eg. ethereum’s state transition function) to automatically calculate the account balance.The whole process is of high efficiency and with no error. The UTXO accounting model is also traceable and easy to audit.
  2. Ensures consistency of distributed ledgers through transaction signatures, consensus algorithms and cross-chain technologies, and automatic completion of account-document matching, ledger matching, and account-reality matchingIt should be said that any entity has its right to perform bookkeeping and has its own account. And the same entity usually holds a variety of ledgers, for example, a company has cashier ledger, cash ledger, bank deposit ledger, inventory ledger, invoice ledger, operating expenses ledger, general ledgers, administrative expense ledger, accounts receivable ledger, fixed assets ledger, 17 column breakdown ledger, intangible assets ledger, paid-in capital ledger, etc.From this perspective, ledgers are always “distributed” and there is no so-called centralized ledger. Because ledgers are easy to be forged and falsified, the question how to protect and maintain the consistency of various “distributed” accounts has become the key point of accounting and auditing.

Traditionally, a reconciliation regime is used to achieve consistency of various distributed ledgers.

The account reconciliation refers to checking and collating the relevant data recorded on the ledgers and accounts, so as to achieve the matching between account and document, between different accounts, and between account and real amount. Matching between account and document means that the account records match the related account documents. Matching between accounts means various books, including various books of an entity, various books from different entities that have matching entries. Matching between account and reality mean that the account balance of various property goods matches the actual amount.

DLT first guarantees the matching account and document through transaction signatures. The account is the document and the document is the account. The two are consistent and difficult to tamper with.

Second, DLT achieves the matching of accounts of various entities through a consensus mechanism.

The transaction information is written into the shared ledger only when consensus is reached. Information written into the account must have been agreed by the entities and the accounts are automatically matched. In addition, DLT uses cross-chain protocols to carry out cash-cash transaction and cash-voucher redemption, which automatically accomplishes the account-reality reconciliation.

DLT ledger improvements

Cross-chain technology not only guarantees the atomicity of pay in cash-cash transactions and cash-voucher redemption, it also guarantees the consistency between the accounts of different cross-chain entities.

Cross-chain technology includes three types:

  1. Notary schemes – This is a centralized or multi-signature-based witness model. The main feature is that it does not focus on the structure and consensus characteristics of the cross-chain, but instead introduces a trusted third party to act as a notary, acting as an intermediary for cross-chain operations.
  2. Sidechains and relays – The side chain is a kind of chain structure anchored to the primary chain. It is not a fork of the primary chain, but extracts specific information from the data flow of the primary chain to form a new chain structure. Relay is a channel for cross-chain information exchange and delivery. Whether it is a side chain or a relay, data is collected from the primary chain and it plays the role of a listener.
  3. Hash-locking technology – It sets an interoperable trigger between different chains, usually a hash value of a random number to be disclosed. The hash value is equivalent to a puzzle for currency transfer, and only those who get the secret random number can get the money. At the same time, it also constructed two “redeem contracts,” which need to be double-signed to become effective and have a time limit, in which the redeem contract for the person making the transfer hash puzzle is longer in duration than the other. One can thus protect his rights and interests.

It can be said that through specific single-chain and cross-chain bookkeeping technology, DLT ledger eliminates a lot of time-consuming, costly and error-prone reconciliation work. It automatically achieves the consistency of all kinds of “distributed” ledgers in real time.

Returning data rights to individuals

Traditionally, individual information of many participants has been “marked out” on various types of ledgers.

Especially with the development of digital economy, privacy protection of personal data is becoming more and more prominent. China’s “Cyber Security Law” and the EU’s General Data Protection Regulation (GDPR) provide legal protection for data subject(owner) to enjoy such rights as the right to know, the right to access, the right to object others’ access, the right to carry the data elsewhere, and the right to be forgotten, in order to strengthen personal privacy protection.

With the signature, encryption and other technical methods, DLT is truly able to  return data rights back to individuals on a technical level.

By using cryptographic primitives and schemes such as zero-knowledge proof, homomorphic encryption, secure multi-party computation, ring signature, group signature, hierarchical certificates, and coin shuffle, the privacy protection of transaction identities and contents can also be achieved.

Improving value of financial statement information

DLT ledgers are traceable, immutable and hard to be forged, which can guarantee the authenticity and reliability of financial statement information. Moreover, DLT ledgers can further enhance the value of financial statement information in the following aspects.

This can happen in three ways:

  1. Improving the timeliness of financial statement information – Traditionally, account processing, recordkeeping, and reconciliation require costs. Therefore, based on the principle of cost-benefit, traditional accounting practices generally require one to create and disclose accounting statements on a monthly, quarterly, semi-annual, or annual basis.This kind of financial statement is based on a periodic assumption that has serious time delay, which affects the timeliness of the financial information. Investors, creditors, financial analysts, business managers, and other entities that need such financial information make decisions continuously. They hope that they can obtain information needed at any time for decision-making.The timeliness of financial information is crucial.From the technical feasibility point of view, based on the DLT with automated execution, real-time accounting and achievable global consistency, instantaneous balance sheet generation has become possible. This may be an important innovation in financial accounting.Of course, some necessary preconditions are required. For example, the DLT ledger should have enough ubiquity to cover all types of accounting elements globally.
  2. Improving the relevance of financial statement information – According to the principle of meeting demand, financial statements are designed to satisfy the information users’ decision-making needs. Therefore, financial statement information should be relevant to the decision process of the information user.Compared with historical cost information, fair value information is more relevant.However, traditionally, due to the difficulty in achieving the timeliness of the preparation and disclosure of the aforementioned financial statements, one has to rely more or less on historical cost method, which impair the relevance of the financial information to the user’s decision-making process.The use of DLT not only can achieve the reliability of financial information, but also can achieve the timeliness of the preparation of financial statements, making measurement based on fair value method more feasible, so as to better meet the needs of information users.
  3. Improving the completeness of financial reporting. Similarly, because bookkeeping requires cost, based on the cost-benefit principle, traditional financial statements often selectively reflect information that is presumed to be useful or important to decision makers. Information users can only access the part of information about the company’s business activities, rather than global information.DLT not only reduces accounting costs and improves efficiency, but also allows the user to penetrate to the bottom of the business operation and obtain complete information, thus improving decision-making efficiency. However, in this process, it may touch upon the information disclosure boundary between the relevant stakeholders’ right to information and the company’s need for protection of trade secrets, which needs further balancing.In addition, the acquisition of global information means the large-scale growth of information, and how to extract information value better becomes crucial. From this perspective, the integration of DLT with big data analysis, cloud computing, artificial intelligence, and other technologies will probably become the future direction of the ledger technology.

DLT for national ledgers

Although existing ledger technology can fully meet the economic needs, as the economic activities continue to evolve toward digitization and intelligence, the upgrading and transformation of traditional ledger technology will be inevitable.

As an emerging technology that is still developing, DLT is not necessarily a must-have item for future ledger technology. However, strengthening research and exploring its application in the generation of various types of ledgers are undoubtedly of practical significance.

In the modern economy, as government deepens its degree of economic participation, national balance sheet management is becoming increasingly important. The 1992 European currency crisis and the Mexican currency crisis from 1994 to 1995 indicate that serious sovereign country asset and liability maturity mismatches, currency mismatches, and fiscal deficits will trigger currency crises.

The outbreak of debt crisis in Europe and the U.S. is even more prominent.

Maintaining soundness of sovereign countries’ balance sheets is particularly important for the effective response to financial crisis and for achieving speedy economic recovery

Not only that, the compilation and management of national balance sheets has become an important part of promoting the modernization of national governance systems and governance capabilities. June 26, 2017, The 36th meeting of the Central Leadership Group for Comprehensive Deepening of Reform examined and adopted the “working scheme of national and local government balance sheet generation.”

Results so far

It can be said that the national ledger is an important support for finding out what is the bottom line, revealing risks, and helping the country’s governance. However, in the actual preparation process, it faces many challenges and difficulties. So far, only Canada has compiled the balance sheet of the local government, and other countries have not, which shows how difficult it is.

Among all the difficulties, the most fundamental issue is data collection.

National balance sheets require a large amount of basic data, high data quality and high technical requirements, and is difficult to implement.

For example, there are insufficient data and statistics; it involves a wide range of cross-agency cross-ministry, cross-industry, cross-regional transaction data, which is difficult to collect and aggregate. In this regard, DLT may have a role to play in making the preparation of the national accounts a reality.

Using blockchains to link natural resources, intangible assets, financial assets, and physical assets, and building a data sharing platform that breaks down various information barriers, unifies information entry, avoids a lot of duplicate work, and reduces the error rate of data validation. Data sharing, verification, and statistics among agencies, ministries, industries, and regions become more efficient.

Judging from the technical characteristics, each participant of the blockchain system is a remote multi-active node. It is an innate multi-active system and can achieve consistency of information across different ledgers through cross-chain technology, and it is suitable for a wide range of coverage.

DLT in financial accounts

The importance of comprehensive financial statistics is self-evident.

Accelerating the development of comprehensive financial statistics is the key information foundation to effectively monitor the effectiveness of the financial services for the real economy and to improve service efficiency. It is an urgent need to preemptively prevent and resolve systemic financial risks and safeguard financial stability. It is an important move to comprehensively deepening the reform of financial system and to establish a modern financial system.

On April 9, 2018, the State Council issued “Opinions on Fully Promoting Financial Comprehensive Statistics Work” to decisively deploy the comprehensive financial statics work, and made the request for a working mechanism of a unified standard, synchronous data capturing, centralized data validation, and aggregate data sharing.

Undoubtedly, from a technical point of view, DLT is more suitable for these four requirements and may become an infrastructure for comprehensive financial statistics.


Modernization of ledger technology is the foundation of modernization of corporate governance and even state governance. DLT has unique advantages and is expected to play an important role. Of course, it also has its shortcomings. For example, DLT is not scalable enough to meet requirements.

Data privacy and access control need to be improved. Integration of DLT into existing accounting systems still needs research. How to further applied it to generate various types of ledger requires further trial and error and exploration. Obviously, higher-level DLT ledger application is based on the maturity of lower-level application.

For example, it will be natural for DLT ledger to be applied at national and industry level when it is already widely used at enterprise level.

Therefore, attention should be paid to the scale effect and synergy effect of technology application, so as to release the positive energy of DLT ledger to the greatest extent.

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No Miners? Intel Seeks to Automate DLT Block Verification

Software giant Intel is looking to protect a novel way to verify transactions on a distributed ledger.

In a filing released last Thursday by the U.S. Patent and Trademark Office, the company outlines a method by which it would partition and update distributed ledgers automatically, with a processor able to independently verify that new blocks are valid and able to be attached to the ledger.

This is distinct from the conventional mining method advanced by blockchains like bitcoin, that rely on a network of competing nodes to verify and record transactions in exchange for rewards.

Notably, the application explains that some of these distributed ledger systems (DLS) could also be blockchains, but makes a distinction between the two related technologies.

According to the application, the physical computers would need to be pre-programmed with certain parameters to define how a block could be validated.

However, discussing the scalability concerns facing blockchains today, the patent application also notes that distributed ledgers may not be the most efficient form of data storage.

It states:

“Distributed ledgers have inherent scalability issues. When all of the validators in a DLS must have a copy of all transactions, all of the transactions must be broadcast to all of the validators. These broadcasted transactions create a very large number of network messages.”

Since this would create a large number of network messages, a DLS can impose “significant storage requirements” and “may not scale well,” it adds.

Intel image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.