NSD makes blockchain privacy claim
October 10, 2017

Russia's National Securities Depository (NSD) claims to have made an industry-leading advance in blockchain technology use, solving the problem made by the challenge of maintaining confidentiality when verifying distributed ledger transactions. It says the achievement has become a cornerstone in blockchain-based corporate solutions for the financial sector in which financial privacy, in terms of client account balances, is key.

What is seen now as a breakthrough had started with the desire to try to create a distributed ledger-based e-voting system for shareholders. Once distributed ledger technology emerged, both developers and businesses proposed a list of applied problems that could be efficiently solved using blockchain. The list included a challenge of creating an e-voting system for securities owners. NSD accepted the challenge, as the company has long been developing similar solutions, although based on more conventional technology.

Once the solution designed by NSD is implemented, any company will be able to ensure confidential, transparent, and reliable shareholder voting, regardless of the number of shareholders voting or the complexity of the voting process. This is made possible by blockchain technology which helps reduce costs associated with various corporate disputes. According to the data available to NSD, each year Russian commercial (arbitrazh) courts handle roughly 12,000 corporate dispute cases, of which 20 percent are disputes relating to decisions made by corporate management bodies, 18 percent are disputes over ownership of shares, and 14 percent are cases in which someone is seeking to invalidate a deal.

In the course of prototype implementation, the developers found that it was impossible to ensure complete confidentiality during the voting process on any of the existing blockchain platforms. That is a global issue relevant to any closed corporate system migrating to distributed ledger technology.

Most centralized IT solutions are isolated, thus preventing external access. External players cannot get information on who voted, how they voted, and how many stocks they used to vote. Any attempt to get such information – either through insiders or through data leakage by the vote counting commission – is a violation of law and subject to penalty. However, if we launch a distributed system, we will be able to derive certain information from the data recorded on a computer of someone involved in maintaining the distributed ledger. Transactions are anonymized; however, as there is some information available regarding market players (such as, who makes most transactions, or who owns an interest in the company), one can interpret such information correctly and, thus, get knowledge of insider information.

That is why NSD decided to invest both in the development of an e-voting system, and in finding a solution to the confidentiality issue in general.

Solution

The issue of anonymization in the voting process was dealt with by a team of NSD employees, external IT security experts, and many developers from across DataArt offices in St. Petersburg, London, New York, Odessa, Kyiv, and Voronezh. The project also involved consultations with the ZCash protocol developers.

The project team applied special encryption techniques that allowed them to maintain the distributed nature of blockchain technology, while ensuring complete data confidentiality. Thanks to the joint efforts, a new technology was created which maintains the anonymity of participants in the course of transaction verification and allows control of the voting process and the automatic counting of votes in the distributed ledger.

From the business perspective, the solution makes it impossible to identify, even indirectly, deal parties, voting participants, or wallet owners in open blockchain networks.

The solution was implemented on the Hyperledger Fabric platform and allows for any digital assets to be issued and dealt with, with any such transaction being protected against forgery through the use of cryptographic tools designed to verify the total balance of the asset in the network.

Creation of a Blockchain-Based Enterprise Platform

As part of the reference implementation of the Hyperledger Fabric platform, the confidentiality issue is solved by removing the network nodes that bear no relation to the particular transaction from the validation process. The remaining network participants are removed from the validation process and cannot see any data irrelevant to them. In addition, in the Hyperledger Fabric network, only a centralized transaction ordering service may, by default, see all data.

To make sure that all of the requirements to the voting process are met, ZK-SNARK algorithms were used. Those algorithms are, in particular, applied for implementation of ZCASH, an anonymous cryptocurrency, and ensure the highest possible level of confidentiality in distributed ledgers at minimum resource costs (as compared to other systems). Technically, the joint use of the ZK-SNARK and Hyperledger Fabric 1.0 algorithms allowed NSD's team to solve the issue of confidentiality in blockchain and to create an effective and efficient voting system. The system has been successfully tested throughout the entire process, from the voting initialization through to the voting, vote counting, and vote recording.

Opportunities for Business

The confidentiality solution opens prospects for implementation of blockchain-based corporate solutions. The NSD says it is in the process of having its rights to the new algorithms registered.

The NSD concludes by saying that its solution may be used for blockchain-based distributed recordkeeping of financial instruments and, in the future, adapted to a wide range of business challenges, such as delivery of goods and services, registration and transfers of rights, financial transactions, and quality assurance.

 





This site, like many others, uses small files called cookies to customize your experience. Cookies appear to be blocked on this browser. Please consider allowing cookies so that you can enjoy more content across fundservices.net.

How do I enable cookies in my browser?

Internet Explorer
1. Click the Tools button (or press ALT and T on the keyboard), and then click Internet Options.
2. Click the Privacy tab
3. Move the slider away from 'Block all cookies' to a setting you're comfortable with.

Firefox
1. At the top of the Firefox window, click on the Tools menu and select Options...
2. Select the Privacy panel.
3. Set Firefox will: to Use custom settings for history.
4. Make sure Accept cookies from sites is selected.

Safari Browser
1. Click Safari icon in Menu Bar
2. Click Preferences (gear icon)
3. Click Security icon
4. Accept cookies: select Radio button "only from sites I visit"

Chrome
1. Click the menu icon to the right of the address bar (looks like 3 lines)
2. Click Settings
3. Click the "Show advanced settings" tab at the bottom
4. Click the "Content settings..." button in the Privacy section
5. At the top under Cookies make sure it is set to "Allow local data to be set (recommended)"

Opera
1. Click the red O button in the upper left hand corner
2. Select Settings -> Preferences
3. Select the Advanced Tab
4. Select Cookies in the list on the left side
5. Set it to "Accept cookies" or "Accept cookies only from the sites I visit"
6. Click OK

Russia's National Securities Depository (NSD) claims to have made an industry-leading advance in blockchain technology use, solving the problem made by the challenge of maintaining confidentiality when verifying distributed ledger transactions. It says the achievement has become a cornerstone in blockchain-based corporate solutions for the financial sector in which financial privacy, in terms of client account balances, is key.

What is seen now as a breakthrough had started with the desire to try to create a distributed ledger-based e-voting system for shareholders. Once distributed ledger technology emerged, both developers and businesses proposed a list of applied problems that could be efficiently solved using blockchain. The list included a challenge of creating an e-voting system for securities owners. NSD accepted the challenge, as the company has long been developing similar solutions, although based on more conventional technology.

Once the solution designed by NSD is implemented, any company will be able to ensure confidential, transparent, and reliable shareholder voting, regardless of the number of shareholders voting or the complexity of the voting process. This is made possible by blockchain technology which helps reduce costs associated with various corporate disputes. According to the data available to NSD, each year Russian commercial (arbitrazh) courts handle roughly 12,000 corporate dispute cases, of which 20 percent are disputes relating to decisions made by corporate management bodies, 18 percent are disputes over ownership of shares, and 14 percent are cases in which someone is seeking to invalidate a deal.

In the course of prototype implementation, the developers found that it was impossible to ensure complete confidentiality during the voting process on any of the existing blockchain platforms. That is a global issue relevant to any closed corporate system migrating to distributed ledger technology.

Most centralized IT solutions are isolated, thus preventing external access. External players cannot get information on who voted, how they voted, and how many stocks they used to vote. Any attempt to get such information – either through insiders or through data leakage by the vote counting commission – is a violation of law and subject to penalty. However, if we launch a distributed system, we will be able to derive certain information from the data recorded on a computer of someone involved in maintaining the distributed ledger. Transactions are anonymized; however, as there is some information available regarding market players (such as, who makes most transactions, or who owns an interest in the company), one can interpret such information correctly and, thus, get knowledge of insider information.

That is why NSD decided to invest both in the development of an e-voting system, and in finding a solution to the confidentiality issue in general.

Solution

The issue of anonymization in the voting process was dealt with by a team of NSD employees, external IT security experts, and many developers from across DataArt offices in St. Petersburg, London, New York, Odessa, Kyiv, and Voronezh. The project also involved consultations with the ZCash protocol developers.

The project team applied special encryption techniques that allowed them to maintain the distributed nature of blockchain technology, while ensuring complete data confidentiality. Thanks to the joint efforts, a new technology was created which maintains the anonymity of participants in the course of transaction verification and allows control of the voting process and the automatic counting of votes in the distributed ledger.

From the business perspective, the solution makes it impossible to identify, even indirectly, deal parties, voting participants, or wallet owners in open blockchain networks.

The solution was implemented on the Hyperledger Fabric platform and allows for any digital assets to be issued and dealt with, with any such transaction being protected against forgery through the use of cryptographic tools designed to verify the total balance of the asset in the network.

Creation of a Blockchain-Based Enterprise Platform

As part of the reference implementation of the Hyperledger Fabric platform, the confidentiality issue is solved by removing the network nodes that bear no relation to the particular transaction from the validation process. The remaining network participants are removed from the validation process and cannot see any data irrelevant to them. In addition, in the Hyperledger Fabric network, only a centralized transaction ordering service may, by default, see all data.

To make sure that all of the requirements to the voting process are met, ZK-SNARK algorithms were used. Those algorithms are, in particular, applied for implementation of ZCASH, an anonymous cryptocurrency, and ensure the highest possible level of confidentiality in distributed ledgers at minimum resource costs (as compared to other systems). Technically, the joint use of the ZK-SNARK and Hyperledger Fabric 1.0 algorithms allowed NSD's team to solve the issue of confidentiality in blockchain and to create an effective and efficient voting system. The system has been successfully tested throughout the entire process, from the voting initialization through to the voting, vote counting, and vote recording.

Opportunities for Business

The confidentiality solution opens prospects for implementation of blockchain-based corporate solutions. The NSD says it is in the process of having its rights to the new algorithms registered.

The NSD concludes by saying that its solution may be used for blockchain-based distributed recordkeeping of financial instruments and, in the future, adapted to a wide range of business challenges, such as delivery of goods and services, registration and transfers of rights, financial transactions, and quality assurance.

 



Free subscription - selected news and optional newsletter
Premium subscription
  • All latest news
  • Latest special reports
  • Your choice of newsletter timing and topics
Full-access magazine subscription
  • 7-year archive of news
  • All past special reports
  • Newsletter with your choice of timing and topics
  • Access to more content across the site

More on:  Technology update