FX International Payments
By Mike Faden
Here’s a brief rundown describing two blockchain standardization initiatives, Hyperledger and Interledger, as well as “embryonic” work on a formal international standard.
The Hyperledger Project is a collaborative effort to define and develop industry-standard blockchain technology that can be used by developers to build applications for multiple industries. It is an open-source project hosted by the Linux Foundation, which is home to many other open-source initiatives including the widely used Linux operating system.
The Hyperledger Project works like most other open-source projects: various companies contribute software code, and the contributions are reviewed, combined and further developed to create the software ultimately released by the Project. Companies that have contributed software include IBM; Digital Asset Holdings (DAH), a financial-software company that also contributed the Hyperledger name, which it previously owned; and financial-software consortium R3, which provided a distributed ledger designed for financial transactions.2 Hyperledger currently has close to 100 members and more than 100 contributors.3
Under the umbrella of the Hyperledger Project are several individual software development projects, all of which are at an early “incubation” stage. The Hyperledger Fabric project focuses on core blockchain technology, including support for smart contracts, and is designed to act as a foundation for developing blockchain applications or solutions. In blockchain, “smart contracts” are agent-like mini software programs that automate transactions when certain conditions are met, such as buying a commodity when its price falls to a pre-set level. Blockchain Explorer aims to create a tool for exploring and viewing data in distributed ledgers. Another project, Sawtooth Lake, is a blockchain suite from chip company Intel.
The Hyperledger initiative also is in the process of forming working groups that focus on the use of blockchain in various industries. Groups have formed around finance and healthcare, and one focusing on supply chain is in process.
Interledger is not a distributed ledger project per se. Instead, it focuses on connecting different ledgers. The project centers on the Interledger Protocol (ILP), which is designed to enable communication between different international payment systems around the world. The idea is that any payer should be able to pay any payee, quickly and at little or no cost, without the need for both parties to set up accounts on the same global payment service. ILP originated at Ripple, a software company providing blockchain-based international payment technology to financial institutions.
One of the protocol’s developers draws an ambitious analogy between ILP and the communications protocols and formats that allow the World Wide Web to exist, enabling information to flow freely and instantly around the world.4 As the developers note, the situation with payments today is markedly different: “Sending money today within any single payment system is relatively simple, fast and inexpensive. However, moving money between systems is cumbersome, slow and costly, if it is possible at all.”5 That’s particularly true for international payments, which can take days and incur high fees as they pass through multiple systems and intermediaries such as corresponding banks. And the problem may persist as blockchain-based payment systems proliferate, since there will still be the problem of communication between them.
To truly become a standard, ILP would have to become widely used for applications that are not directly connected to Ripple, its original developer. As a step toward that goal, Ripple made ILP open source, contributing it to a new Interledger project that is now hosted by the Linux Foundation.6 There’s now also a group within W3C, the web standards organization, that is discussing Interledger for payments.
The International Standards Organization (ISO) also has started work on formal standards for blockchain technology. Australia’s national standards organization, Standards Australia, is leading the ISO blockchain committee, with representatives from standards organizations in 35 countries including the USA, Canada, Estonia, France, Germany, Japan, Korea and the U.K. Standards Australia CEO, Dr Bronwyn Evans, said that the ISO blockchain committee will develop standards for interoperability among systems, privacy, security and terminology.7 ISO standards usually take many years to develop.
Blockchain technologies are at an early stage of adoption, but they are proliferating rapidly. Ultimately, common blockchain standards and protocols may play a key role in enabling interoperability among international payment systems. Meanwhile, new technology usually evolves faster than consensus standards development, so these efforts may have little impact on near-term blockchain deployments.
Mike Faden has covered business and technology issues for more than 30 years as a writer, consultant and analyst for media brands, market-research firms, startups and established corporations. Mike also is a principal at Content Marketing Partners.
1. "Blockchain and standards: first things first!", Finextra; https://www.finextra.com/blogposting/13114/blockchain-and-standards-first-things-first
2. "Linux Foundation Unites Industry Leaders to Advance Blockchain Technology", The Linux Foundation;https://www.linuxfoundation.org/news-media/announcements/2015/12/linux-foundation-unites-industry-leaders-advance-blockchain
3. "Members", Hyperledger;https://www.hyperledger.org/about/members
4. "A Web of Ledgers", W3C.org; https://www.w3.org/community/interledger/2015/10/09/a-web-of-ledgers/
5. "A Protocol for Interledger Payments"; https://interledger.org/interledger.pdf
7. "Australia to lead international blockchain standards committee", Standards Australia; http://www.standards.org.au/OurOrganisation/News/Documents/Australia to lead international blockchain standards committee.pdf