«Bonds on the blockchain»: as a platform Hyperledger Fabric is implemented in NSD Moscow exchange

In October of this year, the team of the National settlement Depositary (NSD, part of the group of companies «Moscow exchange») under the pilot project for the first time has placed the securities with the blockchain. To do this, NSD used the platform Hyperledger Fabric. It was the first in Russia transaction, the members of which — OJSC «MegaFon» and Raiffeisenbank implemented the project on a full cycle of the life of the bonds on the blockchain. After a successful pilot, several companies appealed to the NSD for corporate bonds on the blockchain the platform. The implementation of this project will begin in 2018.

Why specialists of the National settlement Depository has chosen to implement blockchain platform Hyperledger, a performance she has, and what operations apply new technology, the correspondent bits.media said the head of the distributed accounting systems «National settlement Depository» (NSD), Alexander Yakovlev.

Bits.media: Alexander, what effect do you expect from the introduction of the blockchain?

A. Y.: This technology has the potential to change a lot in the financial industry. Technology companies get another chance to fight for the client. Digital assets are already starting to penetrate into everyday life – the excitement around cryptocurrencies only confirms the fact that this technology can be implemented a lot of new and interesting businesses. At the same time, 95% of the proposed applications of the blockchain for a specific already implemented in centralized systems, the task has no economic meaning, and even a chance at legal significance. In 4% of cases, theoretically to prove the economic justification of the use of technology perhaps, but one that does not trouble himself.

Only 1% of projects that solve the tasks without the technology of the blockchain solved is very difficult. But there is a huge number of new use cases that could not be imagined before the advent of the blockchain – new ways of investments, of collective ownership and profit distribution, smart financial tools on the basis of smart contracts, and so on.

B. M.: is it Possible Hyperledger be attributed to a number of consortia?

A. J.: No. Hyperledger is not a consortium, and one of 80 projects the Linux Foundation. The same as Red Hat or Apache, just a little more dynamic. All source code for projects is open and can be used and modified without any restrictions. Even meetings of the working groups are completely open, the schedule is posted on the website Hyperledger and anyone can participate, for example, in the working group on performance and scalability. Donations for participation are voluntary and allow you to participate in joint activities Hyperledger, see your logo on the website and participate in the work of the management Committee.

The project Hypeledger at the moment there are five blockchain platforms and five projects that are not platforms.

In projects on e-proxy and commercial securities on the blockchain we only used Hyperledger Fabric versions 0.6 and 1.0, but work with other platforms, including not Hyperledger.

B. M.: Why was chosen Hyperledger?

A. Y.: We have formulated the criteria according to which choosing a platform:

  • First, there is consensus with the finality – that is, the inability to obtain a few branches (fork) values and separation of the register into several independent versions.

  • Secondly, no need to use cryptocurrencies or tokens for operation of the distributed registry.

  • Thirdly, the presence of a controlled network with identification of participants.

  • Fourth, the ability to ensure the confidentiality of data on account balances one way or the other.

With all the richness of choice in the world there are not so many platforms that fit these criteria, and one of them Hypeledger Fabric. Among other factors, we closely monitor the progress of various blockchain-based platforms, and on Hyperledger Fabric, operating more than 70 distributed registries in the various countries played a role in the decision.

B. M.: Tell us about the technical side of Hyperledger and implementation of ZK-snarks in NSD.

A. Y.: Mechanism of ZK-snarks, one of the implementations of the proof with zero disclosure, is the most advanced solution used to ensure the privacy and secrecy in distributed registries, along with the Protocol Confidential Transactions. It is not yet implemented in the business processes of NSD, since this technology is still just being tested and tested from the point of view of corporate it security and compliance standards in the industry.

B. M.: In what business processes, NSD will apply these technologies?

A. Y.: Talk about ZK-snarks. We built a universal solution together with the vendor. It can be used for Depository services in NSD, and for other tasks that important to the preservation of Bank secrecy. We have already received a number of enquiries from foreign technology companies to use the development to solve their problems, and this confirms our assumption that the protection of transactional data is one of the most important tasks in the implementation of the blockchain in the corporate world. No one will be able to implement a system which does not provide banking secrecy at least existing in the traditional centralized systems.

B. M.: is There a real effect of these technologies? What?

A. Y.: We are ready to develop the technology just in case if we see that it will bring benefits and profits to our customers. Our experience shows that the possibilities of the blockchain for NSD can help to solve some problems, but they will not replace the key technology completely. We use blockchain for e-voting at meetings of bondholders. The technology allows to minimize the risks of distortion of the results.

The issue of commercial bonds of MegaFon on the blockchain the platform of NSD was revolutionary for the industry and aroused the interest of Russian companies and our international partners at the post-trade industry. The transaction on the blockchain unlike the classic has become more effective and transparent. We have demonstrated that the blockchain has the potential to become an industrial solution in the financial market. Assessment of NSD in 2018 interest bonds on the blockchain can reach 10-15 billion.

B. M.: does your platform any Central issuing authority, and how is it protected?

A. J.: anyone managed blockchain (the blockchain permissioned) is the organization administrator. In this case, NSD as a Central securities Depository of the Russian Federation. Levels of protection are many and the platform itself, and special arrangements for access to data through channels inside the platform, and network access protection using VPN, and identification of the network members through regular signatures that are used by professional participants of the markets of the group «Moscow exchange».

B. M.: All nodes store a full copy of the blockchain?

A. Y.: No, within each of the channel data are stored with the channel members and, in addition, validators and ordering site.

B. M.: What is the performance of the platform on the blockchain?

A. Y.: the basic version Hyperledger Fabric is able to provide performance, measured in thousands of transactions per second on standard hardware, and can improve these figures by orders of magnitude, working with the settings. Just in the fourth quarter of this year was a very productive discussion of how to measure the performance of blockchain platforms in the framework of the working group on performance and scalability. Including was a story about the practical experience of using each platform and even in the end there was a project designed solely for testing the blockchain platforms, which is now actively developed by experts of Huawei in China.

Technology ZK-Snarks requires heavy computing and is extremely neat and time-consuming optimization. At the moment we reached capacity in a few dozen transactions a minute on a standard PC, and know how to improve these figures considerably. But whether we are to carry out further optimization depends on the objectives set by the business. For recording of rights to commercial papers for the Russian market, the current performance of this mechanism is already enough.

M. B.: Can the platform meet the requirements of the customers?

A. Y.: Technology is only part of the requirements of the business units. There is still a huge number of functional requirements, regulatory constraints and other issues. From the point of view of technology, we have made some progress in the implementation of the requirements not only in NSD, but in the context of work on a joint project and system implementation for accounting and commercial securities Raiffeisenbank a Megaphone. It was the first experience of such interaction and it brought us very useful results from the point of view of implementation of the requirements of other organizations and collaborate on system requirements on the technology of distributed register (blockchain).

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