The following is a guest post by Charles Ocheret, CTO of Symbiont.
While the U.S. boasts the most liquid capital markets ecosystem globally, some of the technology driving trillions in daily transactions is shockingly archaic, including baroque systems dating back 30, 40, and even 50 years.
Compounding this massive legacy problem are the tens of thousands of applications that were not designed to interoperate, functioning on remote islands amid a vast spider web of information.
Add to this the inertia and glacial adoption of new technologies by banks and other behemoth financial institutions — primarily a result of in-house politics and resistance to upsetting the status quo — and the challenge to act decisively looms large.
However, the risk and costs of inaction are even larger as hundreds of billions of dollars are left on the table annually in reconciliation processes, which can consume over 70% of the cost of post-trade activities.
The optimal solution lies in blockchain-powered protocols that increase transparency and efficiencies while handling all compliance requirements for regulated financial services workflows, such as KYC, issuance, and trading, all on a cryptographically tamper-proof ledger facilitating nonrepudiation, proof-of-existence, and with full support for privacy and confidentiality.
We say that workflows conducted using our solution are preconciled. Our unique use of smart contracts ensures that all parties are always in agreement, can reduce the need for many third parties, and allows for a next-generation agnostic approach that can work across asset classes and will play a seismic role in replacing faulty plumbing.
While the Byzantine empire dissolved in the Middle Ages, this terminology does not reflect an old-fashioned solution. On the contrary, Byzantine Fault Tolerance replaces the creaky legacy financial systems described above with the reference relating to the Byzantine generals’ problem — a game theory puzzle that explains how decentralized parties arrive at a consensus without relying on a trusted central party.
In financial technology parlance, to correctly present a single logical service to the end-user, the network’s machines (or nodes) must agree on the system’s state. Critical information can exhibit inconsistencies without an agreement, such as a conflicting balance in a bank account depending on which node is contacted.
Traditionally, a single organization (or a set of closely tied and trusted organizations) owns and operates all nodes in the system. In such deployments, anticipated failures usually include machine crashes, network partitions, and even denial of service attacks. To address these concerns, crash-fault tolerant (CFT) consensus protocols are often more than sufficient.
However, decentralized peer-to-peer systems like blockchain technologies present a more challenging failure model.
In these deployments, nodes are owned by independent parties that do not necessarily trust one another. In addition to machine crashes and network faults, arbitrary node failures (due to malicious intent as one example) must be considered.
Under this demanding fault model, CFT protocols are no longer viable. Enter Byzantine fault tolerant protocols, designed to overcome arbitrary failures and essential to maintain “one version of the truth” to reach a preconciled consensus via the following unique attributes:
A superior algorithm that is crash fault and malicious attack proof resulting in performance that does not degrade and can tolerate rogue elements on a network
Allows for dynamic membership whereby new nodes can join or leave the conversation
Provides for more extensive and unconstrained network growth
No currency or gas fees are associated with this private blockchain workflow
While technology giants like Cisco and Facebook already employ this approach to preconcile consensus for their leviathan workflows, our platform is leading the enterprise blockchain charge via our smart collateral offering, already powering two blue-chip financial services institutions, which can attest to its viability, utility, and cost savings.
Adapt or wither away
Ways of conducting business that is stuck in reverse will and are being replaced, and blockchain technology have the potential to speed up that process exponentially with major banks and financial services platforms adopting this distributed ledger technology across many facets of their businesses.
While many want to engage and explore how they can help build the next generation of innovation, there is still some resistance. To those stragglers, we say adapt or die: get in on the ground floor or risk further redundancies and reduction of margins that will continually eat into your bonus pool.
We propel fresh thinking and a vision to bridge a new financial future with new platforms and technological breakthroughs.
Any bank CTO or CIO will agree that the plumbing needs to be fixed, and there is now a new way to navigate the rails and pipes.
We need to work in tandem to find ways for systems and workflows to interact without friction, unified in a blockchain infrastructure on an industry-wide basis.
Stop spinning wheels by repatching the same wound over and over.
We can fix this the right way, once and for all, with reduced overhead and inefficiencies resulting in the golden ticket for all involved.
Chuck is CTO of Symbiont Inc. and oversees software engineering, computing, architecture development, and technology leadership. He has 30 years of engineering, emerging technology, and software development experience in the finance, multimedia, and scientific industries. Chuck previously was Chief Innovation Officer at NEX Optimisation, where he integrated cutting-edge Cloud, Distributed Ledger, and Machine Learning technologies to achieve improved efficiencies across the entire trade lifecycle for multiple asset classes.