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Using Blockchain Technology and Smart Contracts to Create a Distributed Securities Depository

Wall, Eric LU and Malm, Gustaf LU (2016) EITM01 20161
Department of Electrical and Information Technology
Abstract
In the existing securities market structure, a securities trade between two parties
requires the involvement of several financial intermediaries ensuring the safety of
the transaction. However, the complexity of today’s market structure in conjunction
with the lack of interoperability between financial data infrastructures and the
disalignment of business practices, are causing costs, risks and friction—resulting
in settlement often taking several days.

Blockchain technology is the innovation powering the cryptocurrency Bitcoin,
which is a network in which digital tokens can be traded peer-to-peer by the
means of cryptography and decentralized consensus. The lack of intermediaries
and short settlement period of cryptocurrencies... (More)
In the existing securities market structure, a securities trade between two parties
requires the involvement of several financial intermediaries ensuring the safety of
the transaction. However, the complexity of today’s market structure in conjunction
with the lack of interoperability between financial data infrastructures and the
disalignment of business practices, are causing costs, risks and friction—resulting
in settlement often taking several days.

Blockchain technology is the innovation powering the cryptocurrency Bitcoin,
which is a network in which digital tokens can be traded peer-to-peer by the
means of cryptography and decentralized consensus. The lack of intermediaries
and short settlement period of cryptocurrencies make blockchain technology an
inspiring database structure for the securities market. In this paper, we examine
the potential of using blockchain technology to create a distributed securities depository.
The decentralized consensus algorithm of blockchain technologies allows
several entities to maintain a shared record of information without having to trust
each other individually, since consensus is formed on a per-network basis. Such a
technology could nurture the realignment of the securities market—or, reinvent it
altogether. Furthermore, the possibility of leveraging consensus-oriented execution
of computer code creates larger opportunities than that of a mere depository; it
allows for the creation of new, trustless markets where securities and their contractual
clauses are no longer merely legal obligations, rather, they are self-enforcing,
autonomous programs.

Here, we propose the overarching design choices suitable for a second-generation
blockchain platform for securities trading, devised to pursue interoperability within
the larger context of the effervescently evolving distributed ledger ecosystem, while
attempting to pay the necessary regard to the demands of regulatory compliance
within the securities industry. (Less)
Please use this url to cite or link to this publication:
author
Wall, Eric LU and Malm, Gustaf LU
supervisor
organization
course
EITM01 20161
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Blockchain, Blockchain Technology, Distributed Ledger Technology, Smart Contracts, Bitcoin, Cryptocurrency, Securities, Decentralized, Distributed, Central Securities Depository, CSD, Delivery versus payment, Consensus model, Sidechain, Colored coins, Cryptofinance
report number
LU/LHT-EIT 2016-530
language
English
id
8885750
date added to LUP
2016-06-29 13:26:50
date last changed
2016-08-09 08:54:08
@misc{8885750,
  abstract     = {In the existing securities market structure, a securities trade between two parties
requires the involvement of several financial intermediaries ensuring the safety of
the transaction. However, the complexity of today’s market structure in conjunction
with the lack of interoperability between financial data infrastructures and the
disalignment of business practices, are causing costs, risks and friction—resulting
in settlement often taking several days.

Blockchain technology is the innovation powering the cryptocurrency Bitcoin,
which is a network in which digital tokens can be traded peer-to-peer by the
means of cryptography and decentralized consensus. The lack of intermediaries
and short settlement period of cryptocurrencies make blockchain technology an
inspiring database structure for the securities market. In this paper, we examine
the potential of using blockchain technology to create a distributed securities depository.
The decentralized consensus algorithm of blockchain technologies allows
several entities to maintain a shared record of information without having to trust
each other individually, since consensus is formed on a per-network basis. Such a
technology could nurture the realignment of the securities market—or, reinvent it
altogether. Furthermore, the possibility of leveraging consensus-oriented execution
of computer code creates larger opportunities than that of a mere depository; it
allows for the creation of new, trustless markets where securities and their contractual
clauses are no longer merely legal obligations, rather, they are self-enforcing,
autonomous programs.

Here, we propose the overarching design choices suitable for a second-generation
blockchain platform for securities trading, devised to pursue interoperability within
the larger context of the effervescently evolving distributed ledger ecosystem, while
attempting to pay the necessary regard to the demands of regulatory compliance
within the securities industry.},
  author       = {Wall, Eric and Malm, Gustaf},
  keyword      = {Blockchain,Blockchain Technology,Distributed Ledger Technology,Smart Contracts,Bitcoin,Cryptocurrency,Securities,Decentralized,Distributed,Central Securities Depository,CSD,Delivery versus payment,Consensus model,Sidechain,Colored coins,Cryptofinance},
  language     = {eng},
  note         = {Student Paper},
  title        = {Using Blockchain Technology and Smart Contracts to Create a Distributed Securities Depository},
  year         = {2016},
}