In one of the first instances of blockchain technology developed and tested for accounting systems rather than post-trade settlement and securities processes among financial institutions, the SBI Sumishin Net Bank in Japan has conducted a successful blockchain test which saw distributed ledgers replace their actual ledgers.
A three-month long experiment by Japan-based SBI Sumishin Net Bank in collaboration with Singapore Fintech startup Dragonfly Fintech and Japanese blockchain solutions provider Tech Bureau Corp – developer of Mijin, the distributed ledger tech used in the experiment — has shown that blockchain technology can successfully be used for accounting systems in core banking processes.
The experiment saw an environment with some 2.5 million virtual bank accounts coupled with the ability to process 90,000 transactions every hour. Supporting the environment were six nodes set up via Amazon Web Services (AWS). The stress test included fault tolerance and frequent availability checks, both of which went through without a glitch, a blog post by Mijin revealed.
Blockchain in Core Banking
While blockchain applications are being sought after by financial institutions primarily in the fields of clearing and settlement, credit default swaps and repo clearing, Mijin claims that this experiment is the first known case of distributed ledgers used for core banking systems.
Mijin’s blog points to core banking systems such as those controlling deposits and withdrawals, ATM, balance inquiry and other processes that are currently on ledger systems centrally controlled by the bank. These fundamental banking systems are among those that can be reimagined and enhanced with blockchain technology, the firm asserts.
Indeed, Lon Wong of Dragonfly Fintech in Singapore stated:
The outcome of the test shows that blockchain can be used for the core banking system. The Mijin/NEM technology makes it easy to integrate with the core banking system.
In fact, it should co-exist with legacy core banking systems, run in parallel and finally replacing them in the long term.
“A Global Paradigm Shift”
Tech Bureau Corp CEO Takao Asayama contends that blockchain technology can achieve 99.999 percent certainity with minimum costs, plenty of reason for banks to embrace the technology even if it cannot guarantee absolute zero downtime.
He also opines that blockchain, as a technology, is closer to accounting systems than post-trade processes, the latter which requires smart contracts to shine through. Pointing to liable mainframes that are still being used by banks, Asayama sees the banking industry and financial institutions will come upon the hour when a change is required. To this end, he sees blockchain as the obvious solution, citing the experiment as proof-of-concept.
Bullish about the possibility of blockchain bringing about a “global paradigm shift” beyond Japan, he added:
[T]he accounting systems which aims for real-time settlements are more intensive than post-trade [processes], so our successful demonstration of an experiment has global implications.
The experiment saw a version of Mijin with the capacity to achieve “4-digit transactions per second while geographically dispersed.” An update which will increase the distributed ledger’s capacity for processing transactions is already in the works, he claimed.
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