South African Reserve Bank (SARB) in collaboration with the banking community launched Project Khokha on the 5th of June 2018. The launch was to show the possibility of Inter-bank settlement using Distributed Ledger Technology (DLT). The project highlights what the SARB is doing in this era of disruption while harnessing it for the good of the country.
This is a step in embracing the change that comes with emerging technologies and contribute to the global initiatives happening right now accessing the application of use cases of DLT. “You cannot regulate what you cannot understand”
The Deputy Governor of the SARB Kuben Naidoo said that this is their first DLT initiative and contribution to other DLT initiatives around the world. In his opening remarks, he mentioned that during the phases of this project, he specifically made some observations.
The first being that he couldn’t envision the successful use of DLT to process high value transactions 6 months ago. This was because of the challenges involved in creation, the complex process of development and testing requirements, and the challenge of acceptance integration between multiple participants. He stated “Design, building and delivery of project khoha happened in less than three months. This is a notable achievement”
Secondly, he noted that the success story of Project Khoha is built on strong collaboration beyond participants but also, connection of strong experts for unresolved challenges. He noted that collaboration is of great importance.
Project Khokha has proved that regulatory institutions are indeed capable of responding to the rapidly changing environment with agility, flexibility and speed. He also stated that “Blockchain is one of the fastest developing and potentially most disruptive technologies” The SARB is keeping pace with these changes by making an attempt at prototyping this new architecture as a result of exponential technologies like DLT thereby contributing to the ongoing analysis of emerging technologies with other global standard setting counterparts. He also noted that in doing this they found out that most of their counterparts faced the same challenges.
Emergence of DLT/Project Khokha.
The planning started in late 2017 and was initiated in early 2018 involving several parties including the major South African banks (First Rand, Nedbank, ABSA, Standard Bank, Capitec Bank, Investec and Discovery Bank), Consensys (as technical partner) and PWC (as support partners).
Hypotheses tested during the period.
= REAL-TIME SETTLEMENT TRANSATION USING STANDARD PAYMENT. This was proven
=PROCESS MESSAGING AT SUFFECIENT SCALE/TIME
=BLOCKS SHOULD BE PROPAGATED WITHIN CONFIDENCE LEVELS
=MAINTAINING CONFIDENTIALITY & PRIVACY OF TRANSACTIONS BETWEEN COMMERCIAL BANKS
=VISIBILITY OF THE SYSTEM FOR THE SARB IS SUFFICIENT FOR OVERSIGHT & OPERATIONAL MANAGEMENT
During the Launch, there was also a demonstration of the actual system. Transactions were carried out on the actual blockchain system in Real-time basis. This involved some commercial banks and the SARB which had a live network of bank nodes with transaction graphs, showing real-time transactions on the DLT. Banks like ABSA and Standard Bank funded the reserve bank. These funds were tokenized for each of the banks and because this was on the blockchain, all the banks involved had to confirm the transactions. The tokenized Rands were issued on the Blockchain account, all the banks involved confirmed and “settlement occurred”. The transactions were on the same ledger across all the banks that they occurred. Invalid transactions were blocked and not submitted. Multiple transactions were also generated going through at the same time. They were being updated and settlement done at the same time in real time. At the end, all the tokens created were detokenized.