Phase Two of Tokenizing Singaporean Dollar Through an Ethereum Blockchain Completed by the Monetary Authority of Singapore

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The Monetary Authority of Singapore (MAS) announced they have completed the second phase of tokenizing Singaporean dollars through an ethereum based private blockchain.

MAS and 11 other global banks, including JP Morgan, Citi, HSBC, and others, “successfully developed software prototypes of three different models for decentralised inter-bank payment and settlements with liquidity savings mechanisms,” MAS said.

The project has apparently reached a breakthrough of sorts in netting, a process by which debts and credits are consolidated into one value. So that if A owes B 100, while B owes A 25, then A just pays B 75. MAS says:

“The three software models developed are amongst the first in the world to implement decentralised netting of payments in a manner that preserves transactional privacy.

Existing netting programmes used in inter-bank payments rely on a single payment queue visible to the operator to find offsetting payments.

Decentralising the queue, however, potentially exposes payment details to an unauthorised party. The latest models in Project Ubin achieve a superior combination of decentralisation and privacy.”

They do not specify how they implemented decentralised netting of payments while perserving transactional privacy, stating that a full report is to be published soon.

But there have been some advances in blockchain technology, particularly through zk-Snarks, which employ highly complex maths to allow anyone to shield transactions from all, while also giving them the ability to show the specific transaction to whoever they wish, such as regulators.

Parts of zk-Snarks have been implemented in ethereum’s public blockchain through Metropolis, an upgrade that is to go live now in just days.

This added capacity is in a very early stage, requiring high technical expertise to be used, but an ethereum developer was able to verify the zk-Snarks part of a Zcash transaction.  Sopnendu Mohanty, Chief FinTech Officer at MAS, said:

“A key outcome of the consortium’s effort is the ability to perform netting while protecting the privacy of transactions. This helps to open up opportunity for a wider adoption of DLT-based settlement systems.

We are sharing our learnings and knowledge from Project Ubin to encourage greater experimentation amongst central banks and financial institutions. We look forward to working with other central banks on the use of DLT for cross-border applications.”

Ethereum’s ConsenSys has been assisting with the project, as well as R3 and IBM, while Microsoft supported the deployment of prototypes on the Azure Blockchain.

The project appears to have achieved some success, with Ong-Ang Ai Boon, Director of The Association of Banks in Singapore stating:

“We see immense benefits from a successful industry collaboration that creates a vibrant ecosystem. We are encouraged that this outcome could potentially be leveraged on by the banks to catalyse the development of more innovative solutions.”

Work on Project Ubin began in November 2016 to conduct inter-bank payments using Blockchain technology with the first phase successfully completed in March this year with a full report in June detailing:

“The Distributed Ledger network consisted of two MAS nodes running Ethereum and MQ Client with the genesis block created by one of the MAS nodes and eight bank nodes running Ethereum, MQ Client, and Common Payment Gateway (CPG).”

Now the second phase has successfully completed, with further work to be carried out as announced by MAS in May 2017:

“There will also be two spin-off projects that will leverage the lessons of the Phase 1 domestic inter-bank payments project. The first project, driven by the Singapore Exchange (SGX), focuses on making the fixed income securities trading and settlement cycle more efficient through DLT. The second project focuses on new methods to conduct cross border payments using central bank digital currency.”

This is the first project of its kind in the world at such an advanced level as far as we are aware. It’s unclear whether MAS will open the system to ordinary citizens too, or limit it to just banks, but state issued cryptocurrencies or tokenized fiats are coming and they may be here as early as next year.

 

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