A use case for Blockchain
Blockchain is a technology term that has been (over)used a lot in recent years. Many have talked about it, but the pro-active Ness Connected Labs team conducted a genuine experiment with it. We first needed a believable use case, where disintermediation benefits both buyer and seller, and a Blockchain platform provides transparency and an audit trail…
Conversations with several fin-tech entrepreneurs revealed an unmet need for a trust-based solution for trading plain vanilla bonds in the financial markets. We wanted to bring that to life on the Hyperledger framework and learn lessons about Blockchain development along the way.
We validated the processes for the offering (by issuers) of bonds contracts which can be either offered, captured or settled. Their relationship is summarized in the diagram:
Issuers – Issue and track bond contracts (which are units of the bond)
Investors – Buy contracts from issuers and trade
Auditors – Track, query and report on contracts and trades
Bond: A bond is issued by an issuer and has a principal, term, coupon rate. A bond can be active or matured
Contract: Units of the bond. For example, a bond of principal value 1m and 10 contracts would have a contract price of 100k. A contract can be in state of offer (selling), captured (buying) or settled (paid)
Trade: A record of change of ownership of the contract and will update the state of the contract
We created unique identifiers for each bond and tracked them within Hyperledger Composer to show how the Blockchain manages and timestamps updates. We created the logged-in flow for an investor and allowed them to purchase a contract in an offered state. We then imagined what an auditor would be able to see and report on. Finally we tried to tamper with the Blockchain to get a feeling for its immutability. (For disclosure we did not spend weeks trying to hack it).
In the film you will see us keep things simple; we control the assigning of read, write and update privileges for our use case. In a true marketplace proposition, complexity would come in the form of membership services (we have to know all the members in a financially regulated scenario) and consensus agreements in relation to the updating of the Blockchain.
We chose Hyperledger Composer because it is a popular open source development toolset and framework to easily develop blockchain applications. Hyperledger Fabric leverages container technology called “chaincode” for hosting Smart Contracts; these comprise the application logic of the system.
Our Hyperledger platform solution stores assets and makes transactional updates on a single shared ledger that is tamper proof and immutable. Once recorded, transactions cannot be altered. All parties must give consensus before a new transaction is added to the network. It can eliminate or massively reduce paper processes, speed up transaction times and increase marketplace efficiencies – while reducing the risk of fraud and cyber-attacks.