Beyond Banking

Beyond Banking

Beyond Banking – Blockchain, Distributed Ledger Technology and the New Economy: the Match Stick Analogy.

by Grant Edmundson June 2018.


Recently the South African Reserve Bank (“SARB”) successfully completed the pilot (“Project Khoka”) of a proof of concept settlement platform on distributed ledger technology (“DLT”) with eight domestic banks.

With technology partner ConsenSys, an Ethereum- based permissioned Blockchain product called “Quorum” was used to enable SARB to process typical daily transaction volumes within two hours.

The key indicators of success for Project Khoka were inter alia to process real time gross settlement transactions using standard payment message formats, maintaining confidentiality and privacy of transactions between commercial banks and for blocks to be processed within one second to 95% confidence level and within two seconds to a 99% confidence level.

On a macro level, it was essential for SARB to maintain a high level of visibility over the entire system with sufficient oversight and operational management to co-ordinate transactional surety. All of these objectives were achieved.

And now…. where to from here?

Project Khoka, by itself is a significant achievement for the banking industry but it is by no means an isolated example of the rapid evolution (and some would say, “maturity”) of Blockchain and DLT. There are dozens of forays being conducted across the globe using different Blockchain products producing first generation applications and for many, Blockchain technology has finally started to wrestle its future away from the stigma of volatility attached to cryptocurrency.

However, beyond the hubris generated by these early achievements, what does this mean for a banking industry which for centuries has enjoyed center stage in the financial services sector? The advent of Blockchain and cryptocurrencies surely dented the confidence of many a board member from London to Hong Kong but early adopters in the sector have already quashed these insecurities under the sheer weight of opportunity that exists in understanding and harnessing the value of Blockchain and DLT beyond that of cryptocurrency.

Blockchain purists (such as they are) would argue that cryptocurrency is merely a “high flying, glamourous cousin” of DLT, symptomatic of the disruptive nature of DLT. On closer examination, there is an element of truth to this perspective but the real assessment that ought to take place is understanding the precise positioning of the banks in this new economy.

The Currency of Data

Drawing on the analogy of McDonald’s fast food franchises being “blue–chip”, high visibility proprietors of real estate rather than simplistic burger outlets, it is not implausible to suggest that commercial banks’ primary asset and core industry is the collation, analysis and distribution of financial data arising from which the exchange of money, as a commodity, is a by-product.

If this perspective is true or even encouraged, the true value of DLT is an absolute game changer for banks as it places the banks, the unparalleled universal proprietors of financial data, at the epicentre of a decentralized sharing economy. Suddenly banks are now able, as akin to the media sector, to own “content” (“financial data”) but to also determine, influence and possibly even own, the means of distribution with the decentralization that occurs through peer to peer networks.

To do so however, will require leadership in banks to appreciate the simple, yet elegant functionality of a match stick.

The Match Stick Analogy

The first modern, self-igniting match was invented in 1805 by Jean Chance and over 200 years there has been very little evolution in the design of a match.

Today the match consists of straight grained wood, usually white pine or aspen and the head of safety matches are made of an oxidizing agent, mixed with sulphur, fillers and glass powder. The side of the box contains red phosphorus, binder and powdered glass. That is it – no fancy design element. No handles, no complicated packaging or containers etc and yet over decades the simple match is universally recognized as the “go to” resource to light a candle in the event of a black out.

Simple, functional and highly effective.

Coming full circle to Project Khoka and the successful performance of the DLT system deployed in that pilot project, Blockchain and DLT is essentially and irrevocably, our modern day equivalent to the match stick in a financial technology context. There may be some evolutionary changes to Blockchain as we know it today (as was the case in the chemical mix to the head of a match) but the essence of the technology is here to stay. The point of no return has been reached and all the advantages of transparency and verification across a decentralized and publically accessible network will have an everlasting and fundamental impact on commerce as we know it. Whether in supply chain auditing, market prediction, protection of intellectual property, data management or simple governance, the impact is going to be deep and widespread.

For banks, the challenge is now to grasp DLT as a match stick and to light fires in the various sectors that are key to the ongoing profitability (and continued relevance) of the banking sector within key industries and, to drive new opportunities for the proliferation of their key asset (financial data) into new business cases and models. Ultimately in a corporate sense, multiple commercial enterprises within each sector will conceivably have layered and collaterally aligned DLT systems at the heart of which banks ought to be positioning themselves. If banks fail to do so, they may run the very real risk of becoming bystanders to the commercialization of their own asset – financial data.


DLT partnered with financial data is a heady mix. Without savvy exploitation of DLT however, banks will find themselves moribund. Project Khoka and early initiatives by the likes of ANZ in the insurance industry would suggest that the message has been heard but not all will react, and many not soon enough. The match has been lit. The only question now is how many fires will there be and how many opportunities can be stoked.