Page 152 - ITU-T Focus Group Digital Financial Services – Technology, innovation and competition

ITU-T Focus Group Digital Financial Services
Technology, Innovation and Competition

companies. Transactions on Ripple’s DLT are validated by consensus rather than using a POW like Bitcoin.
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Participants must choose a set of validators on the network that they trust not to collude and then accept
the consensus of this group of validators with regard to which transactions should be written to the ledger.
Payments across currencies are facilitated by the network’s built-in order book and matching engine which
will ensure that two or more trades between accounts are completed atomically. Its commercial cross-border
payments solutions have evolved to predominantly make use of the Interledger Protocol for cross-currency
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transactions, the RCL, and specifically XRP, are positioned as mechanisms for providing a frictionless, neutral
digital asset that can be used as a bridge currency for cross-border payments, especially between lesser traded
currencies.

2.4 Ethereum

Ethereum is an open-source, crowd-funded project, much like the Bitcoin blockchain. Ethereum has both
permissionless and permissioned features: One can program and participate in Ethereum blockchains without
special permission.

Ethereum allows a network of peers to administer their own smart contracts via a decentralized virtual
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machine ‒ the Ethereum Virtual Machine ‒ to execute peer-to-peer contracts using a cryptocurrency called
Ether and instructions which are often called EtherScript. It uses a POW consensus algorithm, and is the
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prime DLT that uses smart contracts. 44

2.5 Corda

Corda is a distributed ledger platform developed by R3, which includes a consortium of more than 70 of
the world’s major banks and insurers. This DLT is designed to record, manage, and synchronize financial
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agreements between regulated financial institutions. It records an explicit link between human-language legal
prose documents and smart contract code. Its design directly enables regulatory and supervisory Regulatory
Technology (RegTech) observer nodes.
Unlike Bitcoin's blockchain, which distributes the entire history of transactions among its nodes, with Corda,
only verified transactions are shared in a way that only those parties with a legitimate need to know can see
the data within an agreement.
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2.6 Microsoft Azure

Microsoft is providing ‘blockchain-as-a-service’ (BaaS) on their existing cloud platforms, allowing developers
from any entity to deploy private or semi-public blockchains using Bitcoin, Ripple, Ethereum, R3, and other

40 Ripple (2014) The Ripple Protocol Consensus Algorithm, available at https:// ripple. com/ files/ ripple_ consensus_ whitepaper. pdf.
41 Thomas, S and E. Schwartz (2014) A Protocol for Interledger Payments, available at https:// interledger. org/
42 Short computer programs carried on the blockchain that execute their instructions once certain criteria have been met.
43 Etherscripter (2016) What Is Ethereum, available at http:// etherscripter. com/ what_ is_ ethereum. html
44 See Section 4 on Smart Contracts. One example of the potential vulnerabilities in smart contracts is the effect on one employed
by an Ethereum-derived investment platform investment capital called Distributed Autonomous Organization (DAO) whose finan-
cial transaction record and program rules were designed to be maintained on a blockchain. In June 2016, the DOA blockchain
was found to have been exploited through a flaw in the Ethereum code, which if left unchecked, would have resulted in massive
financial losses for DAO participants. After much discussion within the Ethereum community as to how to solve the issue, the
community decided in July 2016 to ‘hard-fork’ the Ethereum blockchain. A hard fork is a backward-incompatible change in the
blockchain design. The effect of this fork was to reverse the exploit and return funds to the DAO. The original Ethereum chain
then adopted the name Ethereum Classic. This incident was the first time any mainstream blockchain was forked to reverse a
transaction without a valid signature in order to make reparations to investors in a failed enterprise. Another hard fork was made
to Ethereum in October 2016. See Coindesk (2016) Nearly Half of All DAO Funds Withdrawn after Ethereum Hard Fork, available
at https:// goo. gl/ gn9Pyh .
45 However, some banks left the consortium in 4Q2016.
46 Bloomberg (2016) Bitcoin and the Blockchain, available at https:// www. bloomberg. com/ quicktake/ bitcoins.

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