Blockchain interoperability has potential to transform global payment systems
Quant CEO, Gilbert Verdian outlines the potential for interoperability to unlock the full potential of blockchain networks
The ‘A ha!’ moment for Gilbert Verdian came just a couple of weeks after Satoshi Nakamoto – a benign Keyser Soze figure – published Bitcoin: A Peer-to-Peer Electronic Cash System, in 2008. The founder of Bitcoin had developed a decentralized solution for holding and trading digital currency. A cybersecurity expert, what most interested Verdian was the trust that such a network could bring to the programmability of money.
At the time he was working for HM Treasury. Over the years, he continued to research and develop a use case for the underlying blockchain technology, while juggling jobs that spanned Downing Street, the Cabinet Office, the Ministry of Justice and NSW Health in Australia.
“I started becoming a bit frustrated at the way the technology was evolving, it was being done in isolation and no one was working together,” says Verdian, who is today, CEO and Founder of Quant, a technology group that provides a platform for connecting different systems to different DLT networks.
What Verdian has built is essentially an API gateway to facilitate interoperability and knock down the barriers that characterized the siloed approach to blockchain usage.
“I started talking about a use case around using an overlay to choose between different networks and create a secure enterprise way to transact between different blockchains. And those were very much human use cases, including safely sharing patient data (I was the chief security officer with the Department of Health for two years). It was a great way to securely transact and send sensitive data and put the control of people's data health data back into their hands.
“The International Standards Organization (ISO) came to me and said, ‘this idea of yours is really good. Can we turn this into a standard?’ I said, ‘Yes, absolutely’. Doing so would bring not only harmonization but assurance to the technology, and give people the comfort that there would be a standard for different types of blockchains.”
Blockchain ISO Standard TC307
This resulted in Verdian establishing the Blockchain ISO Standard TC307 initiative in 2015, which has since become an international effort by 57 countries and organisations working together to standardise the technology.
Verdian, though, was still on the path of discovery. In 2017, having moved back to London, he approached University College London. This led to a year-long R&D collaboration project.
“Then we finally figured out how to turn the idea into something real and tangible, which was around solving interoperability.
“Blockchain was still very limited in its siloed approach. I wanted the technology to unlock its potential. Having interoperability is the right way to get the best out of different types of DLTs and an easy way to integrate into existing systems,” explains Verdian.
With Web3.0 beginning to build traction, the next few years are likely to see significant blockchain application as global business develops different protocols to operate in a more decentralised version of the internet.
That said, full decentralisation is far from easy to achieve, especially in complex markets like financial services where institutions have to adhere to vast amounts of regulation and compliance. The way Verdian sees it, DLT networks will need to integrate into the existing global financial system: “Then you can extend the compliance and the controls you have in place with what you've got today with what you need tomorrow. What you end up with is a hybrid system; a merged structure that is both centralized and decentralized.”
Today’s banking payments system is archaic and ill equipped to tackle 21st century cyber risk. Many of the networks still used are a construct of 1950s thinking and architecture. At that time, engineers could never have imagined that money would run on these networks; it was stored in bank vaults and relied on manual, human-led processes.
“It was in 1994 when Standard Union and Wells Fargo created internet banking, and connected the internet to money for the first time,” states Verdian. “But since then, we've been fighting a losing battle with cybersecurity because we're trying to protect money that shouldn't run on these systems and networks that are insecure.
“Blockchain solves that problem. It allows you to safely trust the networks, the cryptography, the scalability and the resilience to run monetary transactions on a better network. The next iteration, or evolution of these DLT-based networks, is going to be the one that runs the world's transactions globally.”
Back in 2017, Verdian gave a speech at the Financial Stability Board, attended by global regulators and central banks during which he outlined why he felt the global financial system was at risk of market failure because of its inability to protect personal data.
“If you're in compliance or regulation, you're insecure because all the bad guys know what the threshold is,” he states. “They know how to overcome that. What I said was, ‘we need to turn the system on its head and put the data back into control of the business and the citizen’. We decide how we store and use our data and blockchain is the technology to support that.”
Overledger Enterprise overlay solution
Over the last three or four years, banks have initiated various proofs of concept to test if the whole DLT hype was merited. In the last couple of years, says Verdian, they’ve started to figure out that they can make money from embracing DLT technology and embedding it into their products and solutions.
What Quant’s platform allows institutions to do is introduce DLT networks into their legacy infrastructure iteratively.
“If you look at any bank institution, they're running huge amounts of legacy infrastructure; the callback systems, the settlement systems. When I was at HSBC, we spent approximately $6 billion a year just to keep the lights on.
“With our Overledger Enterprise technology, we make it quite seamless to integrate DLT into the existing infrastructure. It’s an enterprise grade approach. By adopting blockchain, they can create new products and new revenue and actually do business with people they can’t trust. That’s because with distributed ledgers, you actually understand the risk in real time. Everyone sees a single source of the truth,” explains Verdian.
By streamlining business processes into automated, digital chain code, or smart contracts, global businesses – not just financial institutions – are able to reduce their operational costs.
Unlocking fund products using tokenization
As a result of developing a blockchain standard and providing a protocol-agnostic technology overlay, Quant’s Overledger solution has opened the door for global enterprises to start embracing DLT on a larger scale, safe in the knowledge that they can overcome any preconceived concerns over transacting with different DLT networks.
“What the banks have found in their use cases,” says Verdian, “is that digitization across asset classes is bringing a range of benefits to them.
“Tokenization is a huge use case.
“Financial institutions might have had funds that were only operational within one jurisdiction. But when they digitize those funds they become a digital asset and all of a sudden, you've got a global marketplace that previously didn’t exist.”
Interoperability is the technology that is unlocking money and making it global.
Currently, Quant is working on a real-use case with the Inter-American Development Bank and working with 12 Latin American countries to upgrade their whole payments infrastructure to digital assets. It’s equivalent to hitting the fast-forward button on your remote control; rather than wait 30 years to become like the UK, all 12 countries will just leapfrog to digital assets in the next two to three years.
Within this new payment ecosystem, central bank digital currencies (CBDCs) and commercial stable coins that are accepted within each individual domestic market can then be used cross-border without any counterparty risk.
“And we're also doing remittance to the US. So this is a real world inclusion use case where payments and advanced payments will allow, for example, an Ecuadorian farmer to get paid in 30 seconds once they've shipped goods, rather than wait six weeks for a cash payment to come through,” Verdian explains.
Going forward, this new DLT-based payment system could transform how global businesses and individuals transact and move money.
“Each central bank creates a wholesale CBDC, which authorizes the commercial banks to create the equivalent pegged stable coin; that is, you'll have your normal GBP account but then you'll also have a digital pound account or digital dollar account. And that's where it gets interesting because that money can roam the world with you, without all the FX risk, and all the associated conversion fees,” concludes Verdian.
One gets a sense that DLT systems are about to become a far more common feature of the global economy over the next few years.