December 3, 2015
Goldman Sachs has filed a patent application with the US Patent & Trademark Office called Cryptographic Currency For Securities Settlement for a cryptocurrency called SETLcoin. Paul Walker and Phil J. Venables are listed as the inventors.
Cryptocurrency SETLcoin by Goldman Sachs will allow P2P transfers with cryptographic tokens representing securities with instant settlement.
As described in the application, the technology provides a virtual multi-asset wallet as a traditional securities and cash account for an individual, investor and/or trader. The wallet has technology to generate, manipulate, and store the SETLcoins for exchanging assets via a peer-to-peer network. The technology facilitates transactions between virtual wallets and non-virtual wallets. Traders will no longer need to visit an exchange to trade securities and the wallet allows securities to be settled within seconds.
Traders using the described technology exchange securities by presenting an open transaction on the associated funds in their respective wallets. SETLcoin ownership is immediately transferred to a new owner after authentication and verification, which are based on network ledgers within a peer-to-peer network, guaranteeing nearly instantaneous execution and settlement, as stated in the patent.
An example of the way the wallet and cryptocurrency exchange will work is described in the patent using IBM and Google shares denominations. SETLcoin wallet or transaction can house a single security or multiple denominations of the same security (1 IBM-S SETLcoin equals 100 IBM shares, for example). SETLcoin wallets or transactions may also house multiple securities. SETLcoins are exchangeable for other SETLcoins and/or other cryptocurrencies. For example, a single IBM-S SETLcoin may be exchangeable for one or more "GOOG" SETLcoins (Google shares), for 13,000 USD SETLcoins, 100 litecoins, and/or for 5 bitcoins, as described in the patent. Even though Bitcoin is mentioned in the patent 20 times, SETLcoin is presented as a currency of its own. The wallet can also be used for governmental bodies for trading with an example of USD issued by the US Treasury.
As transactions are made immediately, each trader must be prepared to make the trade and have the assurance that the other trader is prepared to do the same. For that purpose, the wallet has implemented a two-phase commitment protocol, to ensure that both traders are ready to perform the transaction. After each side is committed, appropriate transaction messages are broadcast to transfer SETLcoin ownership. However, in some embodiments, the described technology can modify trading protocols for two traders to share an open transaction and close it to settle, as stated in the patent. Each transaction message involves the transaction itself and a digital signature.
The instantaneous nature of transactions is backed by independently and freely generated cryptocurrency, verified, and executed within the network, without the risks associated with traditional clearing houses that can delay settlements for several days. The system invented by senior IT execs Paul Walker and Phil Venables would enable almost instant settlement, reducing cost and credit risk, as described in the application.
The technology described in the patent by Goldman Sachs is proposed to have other applications as well. It can be applied in distributed computing environments where tasks are performed by remote devices, which are linked through a communications network. In a distributed computing environment, program modules or subroutines may be located in both local and remote memory storage devices. Portions of the described technology may reside on a server computer, while corresponding portions reside on a client computer (PC, mobile computer, tablet, or smartphone). Data structures and transmission of data particular to aspects of the technology are also encompassed within the scope of the described technology.
Goldman Sachs`s interest in cryptocurrencies has been active for a while now with the most recent $50 million investment in Bitcoin startup, Circle along with China-based IDG Capital Partners. Interestingly, Circle was the first company to receive a New York State BitLicense, allowing it to provide digital currency services in New York State, according to CCN. Goldman Sachs is also getting its fingers into P2P lending to fight emerging marketplace lenders.
As shared by the Bitcoin Magazine, the patent was filed prior to Goldman’s membership in R3 CEV, which is working on a common Blockchain standard for its members (which includes many of the banks listed in FFIEC).
This particular example is a trend indicator in the financial services industry with traditional players having sometimes-secretive projects in-house or collaborating with FinTech to introduce new services for savvy customers moving away from obsolete banking towards FinTech. Cryptocurrency patenting has been accelerating with companies actively filing patents. Bank of America filed a patent on cryptocurrency-based remittances in September 2015. American Express entered the cryptocurrency world by participating in the $12 million funding round of Abra, the world’s first digital cash P2P money transfer network.