Distributed Financial Technology in...
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Jessie Cheng, Deputy General Counsel, Ripple Distributed Financial Technology in Payments Weil, Gotshal & Manges Roundtable Increasing Payment Efficiency Yale Law School — March 3, 2017 1
Transcript of Distributed Financial Technology in...
Jessie Cheng, Deputy General Counsel, Ripple
Distributed Financial Technology in Payments
Weil, Gotshal & Manges Roundtable Increasing Payment EfficiencyYale Law School — March 3, 2017
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What is distributed ledger technology?
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What is distributed ledger technology?
• Blockchain — Technology that collects transactions into blocks and chains them in chronological order, with copies distributed across a number of different servers
• Digital signatures — A cryptographic scheme used by parties to authorize transactions and by the protocol to authenticate transactions
• Consensus mechanism — A process by which multiple nodes agree to update the blockchain with new transactions
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Different ledgers can record different things:
● Virtual currency balances (e.g., bitcoin, XRP, ether)
● Fiat currency balances (e.g., U.S. dollars, euro, yen)
Distributed ledgers aren’t limited to virtual currencies
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Suppose that Alpha Corp. based in the United Kingdom wishes to make a
payment to Beta Corp. based in Japan.
Alpha Corp. Beta Corp.
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Suppose that Alpha Corp. based in the United Kingdom wishes to make a
payment to Beta Corp. based in Japan.
Alpha Corp. Beta Corp.Alpha Bank Beta Bank
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Suppose that Alpha Corp. based in the United Kingdom wishes to make a
payment to Beta Corp. based in Japan.
Alpha Corp. Beta Corp.Alpha Bank Beta BankSigma Bank
Hypo #1: Common correspondent bank
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Suppose that Alpha Corp. based in the United Kingdom wishes to make a
payment to Beta Corp. based in Japan.
Alpha Corp. Beta Corp.Alpha Bank Beta BankSigma Bank
Hypo #1: Common correspondent bank
Sigma Bank• Debits Alpha Bank’s account (-£) • Credits Beta Bank’s account (+¥)
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Suppose that Alpha Corp. based in the United Kingdom wishes to make a
payment to Beta Corp. based in Japan.
Alpha Corp. Beta Corp.Alpha Bank Beta Bank
SigmaBank
Hypo #1: Common correspondent bank
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TaoBank
UpsilonBank
Hypo #2: Distributed Financial Technology
Suppose that Alpha Corp. based in the United Kingdom wishes to make a
payment to Beta Corp. based in Japan.
Alpha Corp. Beta Corp.Alpha Bank Beta Bank
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Hypo #2: Distributed Financial Technology
Suppose that Alpha Corp. based in the United Kingdom wishes to make a
payment to Beta Corp. based in Japan.
Alpha Corp. Beta Corp.Alpha Bank Beta Bank
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Connector
Hypo #2: Distributed Financial Technology
Suppose that Alpha Corp. based in the United Kingdom wishes to make a
payment to Beta Corp. based in Japan.
Alpha Corp. Beta Corp.Alpha Bank Beta Bank
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Connector
Alpha BankConnector’s balance ↑ (+£)
Beta BankConnector’s balance ↓ (-¥)
Hypo #2a: Distributed Ledgers
Suppose that Alpha Corp. based in the United Kingdom wishes to make a
payment to Beta Corp. based in Japan.
Alpha Corp. Beta Corp.Alpha Bank Beta Bank
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Connector
Distributed Ledger
Hypo #2a: Distributed Ledgers
Suppose that Alpha Corp. based in the United Kingdom wishes to make a
payment to Beta Corp. based in Japan.
Alpha Corp. Beta Corp.Alpha Bank Beta Bank
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Connector
Distributed Ledger
Alpha BankConnector’s balance ↑ (+£)
Beta BankConnector’s balance ↓ (-¥)
Do you actually need distributed ledgers?
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Hypo #2b: Interledger Protocol (ILP)
Suppose that Alpha Corp. based in the United Kingdom wishes to make a
payment to Beta Corp. based in Japan.
Alpha Corp. Beta Corp.Alpha Bank Beta Bank
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Connector
Hypo #2b: Interledger Protocol (ILP)
Suppose that Alpha Corp. based in the United Kingdom wishes to make a
payment to Beta Corp. based in Japan.
Alpha Corp. Beta Corp.Alpha Bank Beta Bank
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Connector
ILP Validator
Hypo #2b: Interledger Protocol (ILP)
Suppose that Alpha Corp. based in the United Kingdom wishes to make a
payment to Beta Corp. based in Japan.
Alpha Corp. Beta Corp.Alpha Bank Beta Bank
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Connector
ILP Validator
Hypo #2b: Interledger Protocol (ILP)
Suppose that Alpha Corp. based in the United Kingdom wishes to make a
payment to Beta Corp. based in Japan.
Alpha Corp. Beta Corp.Alpha Bank Beta Bank
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Connector
ILP Validator
Hypo #2b: Interledger Protocol (ILP)
Suppose that Alpha Corp. based in the United Kingdom wishes to make a
payment to Beta Corp. based in Japan.
Alpha Corp. Beta Corp.Alpha Bank Beta Bank
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Connector
ILP Validator
Hypo #2b: Interledger Protocol (ILP)
Suppose that Alpha Corp. based in the United Kingdom wishes to make a
payment to Beta Corp. based in Japan.
Alpha Corp. Beta Corp.Alpha Bank Beta Bank
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Connector
Alpha BankConnector’s balance ↑ (+£)
Beta BankConnector’s balance ↓ (-¥)
Distributed Financial Tech.● Distribution of trust through a
protocol, the process itself
● Settlement occurs on the banks’ own books, coordinated by technology
● Changes are updated in real time
Common correspondent● Centralization of trust in one
counterparty, Sigma Bank
● Sigma Bank records transfers of money between banks
● Banks reconcile their own records with Sigma Bank’s books
What are some key differences?
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One last variation…
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Hypo #3: XRP
Suppose that Alpha Corp. based in Brazil wishes to make a payment to Beta
Corp. based in Thailand.
Alpha Corp. Beta Corp.Alpha Bank Beta Bank
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Hypo #3: XRP
Suppose that Alpha Corp. based in Brazil wishes to make a payment to Beta
Corp. based in Thailand.
Alpha Corp. Beta Corp.Alpha Bank Beta Bank
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Alpha BankXRP balance
Beta BankXRP balance
Hypo #3: XRP
Suppose that Alpha Corp. based in Brazil wishes to make a payment to Beta
Corp. based in Thailand.
Alpha Corp. Beta Corp.Alpha Bank Beta Bank
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Alpha BankXRP balance ↑ (+XRP)
Beta BankXRP balance ↓ (-XRP)
