The Blockchain Academy recently flew to Swaziland to train 50 employees from the Central Bank of Swaziland. The training took place over two days from 12-13 June.
Sonya Kuhnel, Managing Director of the Blockchain Academy, thanked the Central Bank of Swaziland for inviting the academy to Swaziland, and said she looked forward to 2 full days of debate and discussion around cryptocurrencies and blockchain technology.
Gavin Marshall, the course instructor, started by delving into the fundamentals and concepts of cryptocurrencies and blockchain technology. The discussion centred around why this technology is so revolutionary, and what opportunities exist for both financial and non-financial institutions. Bitcoin’s decentralised nature (no one owns or governs it, as well as the identity of its creator Satoshi Nakamoto being a mystery) was a particularly tough concept for the regulators.
Questions such as how individuals can place their trust in a peer-to-peer payment system with no trusted third-party, created by an unknown person, which no one owns or controls, kept the instructor on his toes!
Day 2 focused on how financial institutions such as Goldman Sachs, Santander Bank, Deutsche Bank, Bank of Yokohama, Barclays Bank, Bank of New York Mellon, Citibank, JP Morgan Chase and Visa are partnering with blockchain based start-ups such as Chain, Axoni and ZCash to build blockchain-based proofs of concept in trade finance, settlements and clearing, syndicated loans, post-trade processing of credit default swaps, foreign exchange, cross-border payments and remittances, as well as some other use cases.
Public versus private blockchains
One of the most important discussion points was that of private versus public blockchains, or permissioned versus permissionless blockchains. Why are organisations building products and services using private blockchains such as Ripple when the benefits of transparency, decentralisation and security are so much more abundant in a public blockchain such as Ethereum and Bitcoin?
What is Ethereum and who is using it?
Ethereum is currently second to bitcoin in terms of market capitalisation, with Ripple in third position. What are the use cases for using each of these blockchains and which organisations are experimenting with and building proofs of concept for these? Over 80 organisations such as Microsoft, Intel, Accenture, Thompson Reuters, JPMorgan Chase, CME Group, BNY Mellon, State Street, Toyota, Merck, ING, Broadridge and Rabobank have joined the Enterprise Ethereum Alliance. The alliance aims to create software standards for Ethereum in business use cases, and establish a clear roadmap for enterprise Ethereum features and requirements. These include a robust governance model, intellectual property clarity and licensing models for open-source technology, as well as resources for businesses to learn how to leverage Ethereum.
What is Ripple and Interledger, and who is using it?
Ripple is an interesting blockchain as its specifically designed for financial institutions to use for cross-border payments. A 47-member consortium of financial institutions has successfully implemented a pilot program using Ripple for a cloud-based payments platform called RC Cloud. It allows member banks to do real-time money transfers in Japan, as well as make cross-border payments at a significantly lower cost. More than 75 banks are experimenting with Ripple’s blockchain network, including MUFG in Japan; Santander, Fidor Bank, and BBVA in Spain; Akbank in Turkey; SEB in Sweden; Axis Bank and Yes Bank in India; Bank of America, RBC, Standard Chartered and UBS. Inter ledger is an open protocol introduced by Ripple in October 2015 for sending payments across different ledgers such as RCL, blockchain, HyperLedger, Bletchley etc. to achieve interoperability. Interledger is being developed by a W3C working group.
How are other central banks viewing blockchain technology?
Day 2 provided an insight into which central banks are exploring the concept of issuing their own blockchain-based digital currency. These include the Bank of England, the Banque de France, the People’s Bank of China, the Bank of Canada, the Central Bank of Russia, the Dutch Central Bank, and the Federal Reserve in the US. Countries such as Barbados, Senegal and Tunisia introduced their blockchain-based digital currency in 2016 and 2017.
The government of Japan recently passed regulation making bitcoin legal tender – this makes Japan one of the first countries to do so. In South Africa, the South African Reserve Bank (SARB) in its 2014 position paper on virtual currencies stated that virtual currencies do not pose a significant threat and that the SARB would continue to monitor the landscape closely. More recently, the SARB announced its willingness to emulate Tunisia by launching a blockchain-based digital version of the South African Rand.
The SARB has also been part of a blockchain-based project with some of South Africa’s largest banks, in conjunction with Strate, the Central Securities Depository (CSD) for trades concluded on the Johannesburg Stock exchange for syndicated loans.
Many central banks have publically stated that they are closely monitoring cryptocurrencies and that regulation should follow the innovation. Bitcoin is neither legal nor illegal in many countries. Central banks in China and Russia have announced that they are trialling blockchain technology for digitisation of their national currencies.
Day 2 ended with questions ranging from which is the best blockchain and why, how the central bank should view cryptocurrencies, what concerns they have with regards to cryptocurrencies, and what they should advise Swazi citizens when they invest their money in cryptocurrencies.
The Governor of the Central Bank of Swaziland thanked the Blockchain Academy for helping them understand cryptocurrencies and blockchain technology. He stated that the central bank would continue to engage with companies and individuals who are active in this space to further their understanding of this technology and to stay informed of any developments.