Project Ubin by MAS: Money on Distributed Ledger
- 28 November 2019 | 459 Views | By Abhinav Mishra
Blockchain technology is drastically altering the way financial transactions are performed theses days. With the ability to transact seamlessly across blockchains, it will open up a whole world of new business opportunities. A blockchain, in the easiest of terms, is a time-stamped chain of an immutable record of data that is achieved by a bunch of computers not owned by any single entity. Each of these blocks of data (i.e. block) is protected and tied to each other using cryptographic principles (i.e. chain), hence the word blockchain.
In recent years, Singapore has arisen as a center for blockchain and cryptography, powered by the encouraging stance from the government towards adopting cutting technologies. Singaporean financial institutions are known for their efficiency. Their public policy is exported as a blueprint for other central systems all across the globe. Reports say that there are over 634 companies that have been incorporated in Singapore with a combined market capitalization of approximately US$8.3 billion.
Last year, the National Institute of Singapore (NUS) affirmed a partnership with IBM to develop a curriculum around blockchain and distributed ledger technology (DLT), and governmental agencies and regulators themselves, including the Monetary Authority of Singapore (MAS), are exploring the use of blockchain and DLT to improve methods and productivity in areas including payments, trade finance, and document certification.
Let us first understand what is DLT?
DLT is a type of database that is spread through multiple sites, countries or institutions. It is decentralized in nature, eliminating any need for an intermediary to process, validate or authenticate transactions. Every party (eg. individual, organization or a group) is represented by their computer, called a node, on the network. Each node keeps its own copy of all transactions on the network, and nodes work directly with one another to check a new transaction’s validity through a process called consensus. All of these transactions are encrypted and sent to every node on the network to be confirmed and grouped into time-stamped blocks of transactions. Blockchain is one such type of distributed ledger technology.
DLT is at the heart of a substantial push for innovation across the financial services industry. While DLT is by no means a one size fits all solution, it has the characteristic to radically alter the way business is done and interact with one another. This technology is often termed as the “Internet of Value”, as it increases the efficiency, security, and transparency of transactional activities.
All about Project Ubin
Project Ubin is named after an island located northeast of the Singapore mainland. It is a multi-phased initiative by the Monetary Authority of Singapore (MAS) to explore the usage of Distributed Ledger Technology (DLT) commonly known as blockchain technology for the clearing and settlement of payments and securities. MAS joint hands with a number of financial institutions and enterprise blockchain technology companies like ConsenSys Solutions and JP Morgan’s Quorum to create this massive project.
Project Ubin has completed the world’s first successful trial of cross-border payments between two central banks using digital currencies. It successfully implemented real-time gross settlement (RTGS) systems with full transaction privacy and settlement finality while preventing single points of failure. Project Ubin effectively reimagined institutional infrastructure in Singapore by implementing blockchain platforms.
By trialing with technologies that target to increase transparency and increase efficiencies, MAS signals that it is ready to future-proof its established processes. By launching Project Ubin, MAS solidifies its rightful place at the forefront of banking innovation and industry leadership.
Project Ubin is a multi-year multi-phase project, with each phase intended to solve the pressing challenges faced by the financial industry and the blockchain ecosystem. Project Ubin was conceptualized with the purpose of assisting MAS and relevant industries to better understand the technology and after a vigorous experimentation process, develop it for practical and everyday use. The eventual goal is to help develop simpler and more efficient alternatives to today’s systems based on digital central bank issued tokens.
The project has been divided into five phases.
Phase 1: Tokenized SGD
The first phase of the project took around six weeks and was concluded on 9th March 2017. In the report presented by Deloitte documenting the findings of this phase, the project was said to have been successful in accomplishing its objective of creating a digital representation of the Singapore dollar (SGD). This tokenized version of the republic’s currency could be used for interbank settlement, testing ways bank systems can be connected to DLT, and harmonizing the MAS Electronic Payment System (MEPS+) and the DLT to guarantee interoperability for automated collateral management.
Phase 2: Re-imagining RTGS
MAS and the Association of Banks Singapore (ABS) alongside a consortium of 11 financial service providers and five technology companies led phase two of the project. The 13-week project explored the feasibility of using DLT for specific Real Time Gross Settlement (RTGS) functionalities.
The second phase focused particularly on the viability of decentralizing Liquidity Saving Mechanisms (LSM) while maintaining the privacy of banking transactions. It revealed that RTGS functions could be decentralized without any hampering on privacy, establishing a substantial breakthrough in practical usage for blockchain in the financial sector.
Phase 3: Delivery vs Payment (DvP)
MAS and Singapore Exchange (SGX) along with 3 other technology partners announced the successful conclusion of the DvP project on 11th November 2018. It intended to test the capabilities for the settlement of tokenized assets across different blockchain platforms. This will authorize financial institutions and other corporate investors to simultaneously exchange and carry out the final settlement of tokenized digital currencies and securities assets. Thus enhancing operational efficiency and reducing the settlement risks.
Phase 4: Cross-border Payment vs Payment(PvP)
The Bank of Canada (BoC), Bank of England (BoE) and the MAS jointly issued a report on 15th November 2018, which evaluates alternative models that could boost cross-border payments and settlements. It delivers an initial framework for the global financial community to evaluate cross-border payments and settlements in greater depth. It especially discusses how a variety of payment models could be implemented, from both a technical and non-technical perspective.
Phase 5: Enabling Broad Ecosystem Collaboration
MAS on 11 November 2019 announced the successful development of a blockchain-based prototype that permits payments to be transmitted out in different currencies on the very same network.
The prototype network, developed by MAS in collaboration with J.P. Morgan and Temasek, has the potential to increase cost efficiencies for businesses. The payments network will offer interfaces for other blockchain networks as well to connect and integrate seamlessly. The network is currently undergoing industry testing to test its capacity to integrate with commercial blockchain applications. Beyond technical experimentation, this phase of Project Ubin sought to assess the commercial viability and value of the blockchain-based payments network. Till date, MAS and its partners have engaged more than 40 financial and non-financial firms to discover the possible benefits of the network.
With the upsurge of the market value of crypto assets and the growing attention of global capital, governments have not only tried to introduce significant policies to regulate the encryption market but also discovered and practiced the underlying technologies in cryptographic assets. In harnessing technologies like blockchain and DLT and effectively merging them into daily lives, Singapore’s Project Ubin is definitely a step ahead in the right direction. It only supports the tiny island republic’s attitude in always wanting to stay ahead of the curve and not shying away from being an early adopter of such ground-breaking technologies.
The Monetary Authority of Singapore is at the forefront of the World Central Bank’s exploration in surveying the application of DLT in clearing and settlement, especially in landing trials. Project Ubin provides important experimental references for the issuance, clearing, settlement and other research of national digital currency, and proposes many issues to be resolved about the financial system impact, policy impact and social impact of the national digital currency. From project trials to global system implementations, Project Ubin leaves a huge research space for future exploration of national digital currencies.