Central Banking, a global central banking forum, has bestowed its FinTech & RegTech Award for Best Distributed Ledger Initiative to South Africa’s central bank for its successful Project Khokha, which successfully used an Ethereum blockchain platform to process interbank payments and settlements.
The test demonstrated that distributed ledger technology (DLT) can enable digital as opposed to analog transaction processing, offering significant improvements for global transactions. Central Banking noted on its website that the test’s success demonstrates the need for regulators to address banks’ security and privacy concerns to improve global transaction processing.
Test Simulated Realistic Conditions
The South African Reserve Bank designed and executed Project Khokha in under three months to test the proficiency, resilience, confidentiality, finality and scalability of a DLT solution for processing transactions under realistic conditions on a wholesale payment system. The bank used JP Morgan Chase’s Quorum network with Istanbul Byzantine fault tolerance and Pedersen commitments and range proofs.
The participating banks created their own nodes and were able to pledge, track and redeem the tokenized rand on the distributed ledger.
The project’s main goal was to successfully process the transactions while abiding by the Principles for Financial Market Infrastructures. The project also established measurable goals for performance, transaction time, security and privacy.
One goal was to scale from 70,000 to 200,000 daily transactions, based on real-time gross settlement needs for South African banks. Another was to process one day’s trading in two hours while coping with a one-day loss of processing.
Test Used Established Benchmarks
The central bank established a goal of 95% of transactions validated in less than one second, and 99% of transactions validated under two seconds. While the central bank retained visibility of all transactions, the participating banks could not view one another’s transactions.
The network managed the daily volume under two hours and provided settlement finality and complete transactional privacy. The central bank maintained regulatory oversight of transactions processed under two seconds across a network of nodes that were geographically distributed.
Central Banking noted that regulators need to work together to protect the financial system in ways that will not stifle innovation.