ACI is Paving the Way for Central Bank Blockchains

ACI's new central bank blockchain prototype demonstrates the potential for distributed ledgers to change global banking infrastructures.

AccessTimeIconOct 14, 2016 at 11:56 a.m. UTC
Updated Dec 10, 2022 at 9:26 p.m. UTC
business, boy
business, boy

What will it look like when central banks are on the blockchain? ACI is hard at work modeling an answer to this question.

The international payments firm already enables more than 5,000 credit unions, processors and banks to transact $14tn daily through its suite of software-as-a-service tools, and now it's seeking to uncover how blockchain could play a role in its delivery.

Constructed on a five-node network that runs on servers in Omaha, Nebraska, and Norcross, Georgia, ACI has built a blockchain proof-of-concept specifically designed to simulate how a central bank and four financial institutions could transact on a blockchain.

While that might not be an indicator on its own, ACI has long counted central banks among its customers. Last month, for example, it announced a plan with partner VocaLink to build a payments infrastructure for clearing houses and central banks.

Chief architect Roger Oliphant explained that it took about a month to integrate an undisclosed blockchain into its real-time electronic payments network, Universal Payments (UP). But, while there's still a long way to go, he believes clients are interested in learning more about blockchain applications.

Oliphant told CoinDesk:

"Our job, how we see ourselves at ACI, is to provide the technological mechanisms to our customers to do what makes most sense for them."

Launched in 2013, the UP provides retail payments, transaction banking services and payments risk management in over 80 countries, and it's into this framework that Oliphant said ACI intends to make its blockchain services available.

Eventually, he expects the integration to include multiple blockchains, with implementation assistance from industry consortia.

"Our strategy is that we will provide multiple implementations to allow us to talk to a Ripple network, to work with ethereum," he said. "That's what the majority of our customers are interested in working with."

Plans to integrate

However, Oliphant believes ACI's customers will demand the technology handle at least 2,000 transactions per second, a figure that's a long way from the results it was able to achieve today.

In its proof-of-concept, ACI was able to clear and settle transactions every five-to-seven seconds, or an order of magnitude faster than the one-to-three days required by its current system.

But the same transaction timeframe wasn't enough for payments. Consensus computations, he said, are too slow when compared to the millisecond range its existing system achieves.

In spite of the technological limitations, though, Oliphant said the tech demonstrated some of the benefits blockchain could provide a central bank and the wider financial system.

Had the test been conducted in a real-world situation, Oliphant argues a central bank would be able to view "all the settlement positions and all the institutions" while monitoring transactions.

"They could see all the transactions from each institution," said Oliphant, adding:

"The Central Bank, the Bank of England or the Federal Reserve can now see the real time complete of some of their members."

Potential customers

The comments shed light on how ACI could become an important player should interest in blockchain increase.

In the past, ACI has helped set up the UK Faster Payments, Singapore FAST and the upcoming New Payments Platform in Australia, expected to be operational in the second half of 2017.

But it is the payment firm’s current work with central banks that Oliphant said makes the prototype particularly meaningful.

Earlier this year, ACI even commissioned a report from financial research firm Celent on the impact blockchain technology could have on central banking. The report suggested central bank-issued cryptocurrencies could be seen as early as 2018.
Blockchain and central banks
Blockchain and central banks

ACI’s prototype also follows an uptick in interest in blockchain at global central banks, meaning it might have identified the right market at the right time.

Earlier this month, the US Federal Reserve Chair Janet Yellen said the US central bank was "paying close attention" to blockchain technology regarding its potential benefits to payments, clearing and settlement.

But, there's not yet broad agreement on what this interest means, and so far different central banks have different ideas.

The Dutch Central Bank revealed its plans to see if an entire financial market could be written with blockchain smart contracts, while the Bank of England cautioned that any “extreme revolution” wouldn’t happen anytime soon.

On the horizon, however, Oliphant expects changes.

He noted that technology is being developed that promises to be able to transact 1 million transactions per second, citing in-development advances like ethereum's Raiden Network.

Oliphant concluded:

"We’ve been waiting for is that kind of velocity."

Business boy image via Shutterstock


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