What Is Digital Asset? | Distributed Ledgers for Financial Institutions
Blockchain technology is often called the “Internet of value.” If so, it makes sense that the financial industry should be among the biggest to benefit from distributed ledgers. Digital Asset is a company providing a flexible infrastructure for regulated financial institutions to share processes and data securely. And it’s one of the first big movers to start developing products that will integrate blockchain into the heavily regulated global financial markets.
Its current project portfolio, partnerships, and overall vision are set to bring a steep change to the way that financial and other multi-party transactions are carried out. This is much needed for an industry that still feels the regulatory repercussions of the 2008 global crisis.
Current Landscape in the Financial Industry
The financial industry processes transactions worth trillions of dollars on a daily basis. The infrastructure that processes this transaction volume has evolved–laws, market regulations, computer systems, and databases.
There’s a vast amount of data duplicated across different databases that serve to create trust and resilience in the transactions that are taking place. Each party to a transaction must reconcile each entry, a necessary exercise to ensure the integrity of recorded data. Think double-entry bookkeeping on a global scale.
Because the current infrastructure has evolved to deal with a heavy transaction volume over time, it comes with problems. If there is a regulatory change, like those prompted by the global financial crisis, systems need to be updated to accommodate the changes.
Similarly, hackers force developments and upgrades in security protocols, which in turn require software upgrades that can be expensive and cumbersome for financial firms to apply across legacy systems.
Enter Digital Asset
Digital Asset recognizes the potential that distributed ledger technologies (DLTs) can bring to the financial sector. DLTs provide a permanent record of truth held between multiple parties, making the duplication of data across various systems controlled by different parties redundant.
DLTs update in real time, unlike many current systems. The automation capabilities of smart contracts also provide enormous value within the financial sector, creating an automated workflow for the exchange of value, with an immutable fulfillment of agreed conditions. Smart contracts, therefore, can help to standardize and automate the many complex legal agreements that are commonplace across the financial industry today.
Digital Asset also understands that existing blockchains are generally not fit for the purpose of the financial industry. This is due to the many legal and market constraints applied to financial services firms. Legal requirements also govern what kind of information must be public and what must be confidential. Bitcoin and Ethereum are not set up to meet those requirements.
Current transaction speeds are another constraint. No existing public blockchain operates fast enough to handle the transaction volumes needed.
Finally, any smart contracts developed for use within the financial sector must be testable and predictable enough to provide a cast iron guarantee that they won’t be subject to the kind of unintended consequences that the DAO experienced.
Digital Asset Platform
Digital Asset has developed their own distributed ledger platform. It aims to navigate the issues described above to bring the benefits of distributed ledger technology to the financial sector. The platform offers a flexible infrastructure that assures data integrity and confidentiality. With this flexibility, financial institutions can access customized tools and processes that will mean they can work together transparently.
The following core innovations are at the heart of the system:
Permissioned and Segregated Ledgers
Ledgers that are viewable and editable only by those with permission. Additionally, the segregation element means that the ledger data is separated into parts. Only permissioned participants can view the particular section for which they have access.
All segregated parts of the ledger share a global set of cryptographic hashes, like fingerprints. These hashes align to ensure that the entire ledger data is accurate. It remains consistent for all participants regardless of what they can view or edit.
The ledger contains two components:
- The Private Contract Store: This contains the details of all contracts and transactions for that particular participant or organization.
- The Global Synchronization log: This ensures that each segregated component of the ledger is updated and consistent for all participants, regardless of their viewing rights. It serves to ensure that the same transaction is never logged twice. It also notifies changes to those who have the relevant permissions to know about them.
Business Logic Layer
The Business Logic Layer runs on top of the ledger. This layer is developed in a custom programming language called Digital Asset Modeling Language (DAML). This is a domain-specific language. It differs from a general-purpose programming language, like those used in the development of DApps for Ethereum. General purpose languages let you program any eventuality, but also let you experience any eventuality. DAML, by contrast, enables you to program predictable behaviors and analyze all possible outcomes of a particular scenario.
Using DAML provides regulated financial institutions with security. It ensures that smart contracts set up on the Digital Asset Platform will adequately reflect real-life terms. This includes legal and regulatory compliance.
Digital Asset – The Story So Far
Digital Asset is no blockchain startup in the usual sense of the word. It didn’t conduct any ICO. According to its website, the company raised over $110m in venture capital funding from major investors including Citi, JP Morgan Chase, and ABN Amro.
The CEO of Digital Asset is Blythe Masters, a former executive at JP Morgan. In addition to her CEO role, Masters is also Chair of the Governing Board of the Hyperledger Project.
The company is currently working on some high-profile projects, surrounding how stock exchanges conduct and record financial transactions. The Australian Securities Exchange announced that it will go live with distributed ledger-based trading in 2020, based on the Digital Asset Platform.
Swiss SIX Exchange has also announced it will use the Digital Asset Platform for a solution covering the entire bond life-cycle from issuances to settlement.
You can watch Blythe Masters discuss the collaboration between Digital Asset and Hyperledger in the video below.
High Expectations for 2018
Digital Asset is featured on the WSJ list of 25 Top Tech Companies to Watch in 2018. The list comprises firms that the WSJ believes will emerge in their respective fields as leaders, based on factors such as investment, founders’ experience, and growth. If the financial world is undergoing a sea change with the advent of blockchain and crypto, then Digital Asset appears to be at the helm of the ship.
Please note that all information in this article is based on current research including the Digital Asset corporate website. It is correct as of June 2018.