Permissioned ledgers are a hot topic in both the Bitcoin and Financial Industries. Coinprism is joining the fray with Openchain, an open source permissioned ledger that anyone can use.
Founded by ex-Microsoft software engineer Flavien Charlon, Coinprism is a company that has been extending the capabilities of Bitcoin’s Blockchain. A technology called “colored coins” makes the blockchain a ledger that can record more than simple payments.
Coinprism developed the main colored coins standard, Open Assets, which attaches a limitless variety of asset types to normal bitcoin transactions, through additional metadata. The open source system is now used by companies such as NASDAQ, Overstock and First Data.
“Being the most open platform, it’s no surprise to see more and more both financial and non-financial companies starting to use Open Assets.”
— – Coinprism
What was a surprise to the company was Overstock’s first use of the protocol, which anyone is free to use. “We can see the bonds have been issued on June 8, and that a recent transaction (July 30), which corresponds to one of their latest announcements, has sold 500,000 units of it ($5M),” stated Coinprism when they discovered the transaction.
Coinprism.info is the main block explorer for colored coins. Whenever a transaction is committed to the Blockchain, Coinprism detects if it’s a colored coin transaction. Bitcoin is a public ledger after all, and everything that happens on the Blockchain is public.
Coinsprisms block explorer will also extract the metadata related to the asset, even if an asset was created completely outside of Coinprism and its asset metadata is hosted on a third party website, “we can index it, thanks to the transparency of the Blockchain.”
“If you pay attention, you will notice an asset in the asset directory called Overstock Bond OSD. And Proof of Authenticity tells us the asset has been issued by t0.com, which is known to be Overstock’s platform.”
— – Coinprism
This transparency isn’t to everyone’s liking, although the cost savings associated with blockchain technology certainly are. A Japanese company, Mijin, recently announced plans to offer private blockchain technology solutions to financial institutions, reducing their infrastructure costs by up to 1000% by 2018. “Within a single company or between partners, a permissioned blockchain is often desired, not only to realize zero downtime, but also to improve security and performance, at low cost,” stated the projects press release.
Financial institutions are certainly showing an interest in the technology. A consortium of banks including Barclay’s, UBS and J.P. Morgan, recently joined forces to investigate possible applications, coordinated by Wall Street-based R3 CEV. “This partnership signals a significant commitment by the banks to collaboratively evaluate and apply this emerging technology to the global financial system," said David Rutter, R3 CEV CEO.
“Our bank partners recognize the promise of distributed ledger technologies and their potential to transform financial market technology platforms where standards must be secure, scalable and adaptable.”
— – David Rutter, R3 CEV CEO
Coinprism’s latest open source offering is Openchain, an entirely new distributed ledger protocol that anyone can implement. “Unlike Bitcoin, which is based on a central, unique distributed ledger, the concept behind Openchain is that each company and institution can deploy their own instance of Openchain, which then can interconnect to each other,” states the company.
Unlike Open Assets, Openchain has been designed specifically with financial institutions in mind. Flavien Charlon, CEO and Founder of Coinprism, explained how tricky that design phase was. “We had to decide in which direction we would go. Should we just implement lightning networks for colored coins? Should we build a new system forked from Bitcoin or Ethereum? Should it use proof-of-stake or authorized miners? Or should we just build it from scratch?”
The decision was made to build Openchain from scratch, which gave Coinprism the opportunity to focus on some of the issues faced by Bitcoin. “An example of that is transaction malleability. After seeing all the problems that malleability caused with Bitcoin, making sure our system was immune to it was high on the list,” said Charlon. Another issue is the structure of the blockchain itself.
“Blocks introduce a delay,” Charlon explained. Focusing on financial systems means taking into consideration the millions of regulated transactions taking place on a daily basis. Bitcoin’s blockchain is limited to ~7 transactions per second, and can take anywhere from a few minutes to several hours to confirm.
“With Openchain, every new transaction is immediately chained to the previous one, which means confirmation can be made instant, while still having the guarantee of immutability. From a semantic point of view, that means that Openchain should really be called a ‘transaction chain’ rather than a ‘block chain’.”
— – Flavien Charlon, Coinprism CEO
This doesn’t mean that the benefits of Bitcoin are being discounted, Openchain uses the immutability of Bitcoin by publishing ‘anchors’ into the blockchain. “ [Openchain] can then benefit from the security and irreversibility of Bitcoin while keeping transaction costs to a minimum.”
“With Openchain, we have taken all the key characteristics of a Blockchain like immutability, auditability and programmability, but removed the legacy of proof of work. This allowed us to build an extremely efficient and scalable platform with no compromise.”
— – Charlon
An exclusive feature to Openchain is a hierarchical account system, which is a hybrid between a file system and a double-entry accounting system. "This lets the administrator of an Openchain instance define their business rules (such as AML/KYC) by setting various permissions on accounts, with different levels of granularity,” states Coinprism
“Larger organizations tend to be organized hierarchically, so this ledger structure suits them perfectly. For example, we could imagine a root account for the whole company, with multi-signature keys owned by the board of director, then a sub-account per division in the company, then more sub-accounts for individual employees. This structure aims at making management, accounting and auditing simpler.”
— – Charlon
While Openchain can work independently from any other system, it is also possible to use smart contracts to create a two-way peg with a Blockchain such as Bitcoin, effectively turning it into a federated sidechain compatible with Bitcoin and the Open Assets protocol, a situation that may well give the protocol an advantage over any other.