In a nutshell, the blockchain technology is just a tool capable of transaction data storage (database). But some specific characteristics of the blockchain technology, such as transparency, decentralization, reliability and unlimited volume for stored data, make it stand out. From the first days of the technology when it only gained the interest of a small group of crypto enthusiasts, it has made its way to big industry players. In the fall of 2016, Bank of America and Microsoft have announced the start of financial blockchain platform development. During that time was also conducted the first blockchain-based trade-finance deal of almost $100,000 worth between the Israel-based start-up company Wave, British bank Barclays, and Irish agricultural food co-operative Ornua. So with close interest and massive investments from the side of top world companies, the blockchain technology is no longer in the shadow. And already today the technology make a significant impact on a variety of industries, especially on retail, healthcare, financial services, and public sector.
With a large number of different blockchain platforms available today, we have decided to do a quick review of the most prominent with a particular focus on the financial sector as a sector seeing significant benefits from implementing the blockchain technology. According to the report from Accenture, 71% of financial institutions admit that blockchain and smart contracts will be critical or very critical for their companies over the next three years (from 2018 to 2021).
At the same time, the invention of distributed ledgers has changed the way of how static data (a registry), and dynamic data (transactions) is gathered and communicated. In the long run, the DLT blockchain technology can fundamentally transform the financial sector by maintaining a more accurate and up-to-date record of both static and dynamic data, and, according to the same report from Accenture, cut $15 billion to $20 billion in costs for banks by 2022.
The more detail on each blockchain platform is below.
One of the most famous platforms on the market used widely across multiple industries. Ethereum is a public, smart contract based blockchain platform that provides developers with an appropriate space to build distributed apps (Dapps). While Bitcoin was the first decentralized cryptocurrency, Ethereum was aiming to take decentralization to the next level by providing smart contracts along its network, which permanently removes the need for an intermediate in some situations.
High reliability. Since the platform is decentralized and involves thousands of nodes, it has minimal downtime.
Per day traffic. The blockchain community is actively using the Ethereum platform, and some numbers confirm it: as of January 1, 2019, on Ethereum platform were recorded 448,168 transactions, as compared to only 234,725 bitcoin transactions in the same day.
High energy consumption. In one research, an environmental expert argued that cryptocurrency transactions might consume as much electricity as Denmark by 2020. And this is because of the PoW protocol, which is quite energy-intensive.
The slow speed of transactions. The mentioned above proof-of-work validation mechanism has made the network slower and open to congestion. The average settlement time for Ethereum transactions is 3.5 minutes; however, the platform is moving to change its consensus algorithm to the fast PoS (proof-of-stake) in future versions.
Cost of transactions. As of December 31, 2018, the fee going to the Ethereum network for each transaction is about $0,0872, which is considerably higher than the same charge on other platforms. For example, the transaction fee on the Ripple platform is $0,0004.
Quorum is the open source project developed and launched in October 2016 by JPMorgan. The idea behind Quorum was to make Ethereum enterprise ready with some variation on the concept of private blockchains since confidentiality of records has always been a concern of financial institutions. Made by financial industry experts, it specifically shaped for use in industries where enhanced transaction speeds and contract privacy is the matter of great importance.
Managed privacy of transactions. JPMorgan, as a financial services company, was looking for some additional modification and features that were missing in already existing blockchain platforms. Among these features, the private transaction functionality was the main focus. With private transactions only, a specified number of nodes can see and process the transaction, while that transaction means nothing to other nodes. And while open transactions on the Quorum platform are similar to Ethereum, when it comes to the need of private, confidential transaction then the data is not exposed to the public.
The speed of transactions. Another reason why Quorum is the preferable choice for the financial services industry is its higher speed of transactions in comparison to its competitors. The platform can provide significant transaction speeds, because of its Raft consensus algorithm, providing fast block times.
Cost of transactions. In contrary to Ethereum on which it was built, the Quorum platform has no fees for transactions.
Incorporation of Ethereum updates. Since Quorum only slightly modifies the core of Ethereum, it's able to adopt the majority of Ethereum updates without any issues.
The speed of private transactions. Private transactions on Quorum are 30–40% slower in processing than public transactions. Such a slowdown may be connected with the use of the general-purpose mechanism Constellation, which involves encrypting specific messages in communication with an enclave, a store of previous transactions, authenticity, and authentications.
Also, some tests have found that the platform has issues with transaction pool processing.
Hyperledger presents itself as a hub, allowing companies to build and run industry-shaped blockchain applications and platforms that cover their individual business goals. Launched by IBM along with along a few of financial incumbents and hosted by the Linux Foundation, Hyperledger represents hundreds of collaborating enterprises across finance, IoT, supply chain, banking, technology, including such big names as SWIFT and London Stock Exchange Group. Hyperledger Fabric is one of the Hyperledger projects, which was first introduced in 2016. Hyperledger Fabric leverages the technology to host smart contracts called “chai code” and, unlike Ethereum, doesn’t require a built-in cryptocurrency.
Enterprise-ready solution. With the efforts of IBM, Intel and Cisco behind the solution, Fabric has been made with a clear focus on enterprise companies. For businesses working in a fast-changing environment, Hyperledger is an excellent option to consider due to its modular architecture. The modularity of Fabric architecture provides flexibility, enabling companies to implement their preferred tools or components, including encryption and consensus.
Private channels. For the companies with a vast blockchain network and the need to share data only with certain parties, Fabric provides an option to create a private channel with just those selected participants. Also, there is a possibility to perform private transactions in the network, as in the case with Quorum. So, for highly regulated sectors with sensitive information, such as healthcare and government, the mentioned option is definitely a pro.
The high level of data protection. The protection of sensitive data is ensured by the HSM (Hardware Security Module), which collects all private keys, providing far more security. Along with that, Hyperledger Fabric provides modified and unmodified PKCS11 for key generation, which also offers more protection in such cases, as identity management.
Limited use. Since Hyperledger is not a public blockchain, it remains an appropriate choice only for B2B or B2C enterprise solutions.
The platform is not mature yet. The first version of Fabric was released in July 2017, so the solution is quite fresh in comparison to its rivals. And this fact leads to the lack of proven use cases and a relatively small number of developers able to use the framework.
Ripple blockchain is another example of enterprise-shaped solution with a particular focus on global financial transactions of any size with no chargebacks. Initially founded as Opencoin in 2012, the company was renamed to Ripple with the renewed aim to connect banks, digital asset exchanges, and payment providers by cross-border payments (xCurrent), minimizing liquidity costs (xRapid), and by sending payments across various networks (xVia). The network enables global payments through its digital asset called “XRP” that was the best performing cryptocurrency in 2017, with a stunning 36,000% increase throughout the year. The whole Ripple Network is presented not as a competitor to banks, but an alternative way to utilize the power of the distributed ledger for cutting out a lot of the middleman work and speeding up transactions, while still leaving banks as a central controlling authority.
Strong connection with large financial institutions. Ripple has been launched as a tool for connecting banks and other payment processors. With that thought in mind, the platform was made without the lack of regulation and transparency and in compliance with Know Your Customer (KYC), Anti-money laundering (AML), and Suspicious Activity Reporting rules. At the same time, the platform is not decentralized, having banks as a central controlling authority -- the fact that also looks like an obvious pro to major financial institutions.
The connection of different payment systems together. Today’s payment systems are similar to what was the email technology in the early ’80s, according to Ripple’s chief cryptographer, David Schwartz. Since every provider had their own system and people used different ones, they couldn’t easily interact with each other. The purpose of Ripple is to connect different payment systems in one solution.
Fluent transactions. The main advantage of the Ripple -- the ability to process 1,500 transactions per second at a little cost. Ripple can handle the same throughput as Visa at 50,000 transactions per second with a cost of only a minimum of ten drops, which is ten one-millionths of one XRP. So it also a significant threat to existing traditional transactions because it can deal with a high volume of transactions without being slowed down.
The network participants have less control over the network. Even though XRP Ledger is an open source protocol, it is pretty much controlled by Ripple Labs. So users do not have equal rights which is a crucial feature of a system that is truly decentralized.
An issue of compliance. In order to use Ripple, a company must also become a gateway between Ripple users and the Ripple network. To become a gateway, companies must first comply with a significant number of regulations, which only the large financial institutions are capable of meeting.
So, as we’ve discovered above, there is no single solution to fit all needs of any organization. But we can start with the best options for the specific industry and then choose the best-suited platform for a business’ particular needs. If your business demands privacy and control, a private blockchain network is the only option for you. Consider Quorum and Hyperledger, if the privacy of transactions is a must for your business. If you need an appropriate space for creating apps with openness and censorship resistance, then Ethereum would be a better choice. In the case of public assets management and fast cryptocurrency transactions, there is Ripple, as the most appropriate choice. However, on practice, the final decision is tough due to many additional factors to consider such as pricing, scalability, energy consumption, etc. So the help of experts in this area is still preferred.