Matthew Hale
Matthew Hale

Matthew Hale


Submission to Senate Select Committee on Fintech and Regtech - Part 5

Part Five: On Technology

Block8 recently provided a submission to the Australian Senate’s Select Committee on Financial Technology and Regulatory Technology. We focused our discussion on the use of distributed ledger technology (DLT) and its relevance to the Committee’s two public consultation papers that were released during 2020, as well as the Committee’s terms of reference in general.

The perspective we provided was one not just as technologists, or as blockchain specialists, but as a holistic product development company. Block8 not only provides professional services, but also co-ventures with subject matter experts to design, build and commercialise full-stack and production-grade software solutions. We understand the importance of discussing these topics with a practical lens. In isolation, DLT presents several novel characteristics when designing a new software application, but we must look to integrate a number of related technologies and considerations in order to realise its full potential. This includes things like scalability techniques, rules as code, privacy-preserving technologies such as zero-knowledge proofs and secure hardware, and digital identity.

This blog series mirrors our submission to the Committee, covering the following points of discussion:

  • [1] Introduction, providing the context and motivation for our submission from our CTO;
  • [2] Challenges, discussing blockchain awareness and innovation culture;
  • [3] Opportunities, discussing the scope of FinTech and RegTech opportunity for Australia;
  • [4] Regulation, with a focus on the Consumer Data Right;
  • [5] Technology, covering the characteristics of blockchain and misconceptions; and,
  • [6] Conclusions, which summarises our present challenges and imperatives.

If you’re in any way curious about the future of digital technology, particularly as it applies to Fintech, Regtech, or the future of the Australian digital economy, we hope you will find some value from this series.

As before, new blogs will be published each week, but if you want to read the full submission early, you can do so below.


On Technology

New Tools for the New Age

In the macro context of increasing awareness of the need for data privacy, data rights, and indeed the lessons from international political gyrations on the power of data, we have an imperative to assess the methods available to us for managing it. Once data has been revealed to a counterparty, all control over it is lost. It is forevermore impossible to track to see who has possession of it, or understand how it has been used. It’s a very difficult problem because it originates from the core of how a computer - and by extension the entire Internet - fundamentally operates.

However, we’d like to highlight that there are technologies available to us to help manage this dimension of our digital future, and DLT is just one part of the answer. Over the course of the next generation, blockchain technology will transform the entire digisphere, and only a complete understanding of all of the tools at our disposal will adequately prepare us for the change coming ahead.

There are three key categories of note:

  1. Hardware-based security and privacy (such as secure enclaves and open-source hardware);
  2. Software-based security and privacy (such as formally verified operating systems and software, and advanced cryptography such as zero-knowledge verification, multi-party compute (MPC) and fully homomorphic encryption);  and,
  3. Distributed ledger technology and advanced consensus algorithms (such as the RedBelly Blockchain developed by USyd and Data61/CSIRO) and related software architectures combining the above.

Why Distributed Ledger Technology?

Block8's mission is to use distributed ledgers to make a fairer and more efficient world.

We selected the word “Fairer” because this technology is, fundamentally, a new tool in our ability to organise information. In particular, DLT provides the ability to reliably share - decentralise - information relating to things of value (digital representations of 'rivalrous' assets), meaning that market power no longer needs to be centralised, and parasitic information asymmetries can be minimised.

We selected the word “Efficient” because a distributed ledger is a modern invention that seeks to optimise a very old yet very common use case: intermediation. Distributed ledgers solve intermediation with technology - a set of use cases that have previously enjoyed no technological innovation since the invention of the original solution: those of custody. Where custody is not used to facilitate a transaction between two untrusting entities, additional processes are needed to ensure each entity is satisfied with the integrity and outcome of the transaction. Hence, with a distributed ledger, the time and cost efficiency of any transaction is improved when there is an agreed source of truth (data) for that transaction process between the entities, and now, when designing information systems that facilitate interactions between entities, we have a second technology option: a distributed system.

With today’s hyper-centralised information technology mix, the biggest efficiencies we observe are from the biggest centralised services. Under these centralised models, there is usually little scope for more than a single software platform (market) in any given domain; consider the social network, the professional network, the market for ridesharing, or the market for short term holiday rentals.

But the centralisation of information causes the centralisation of power and the introduction of market information asymmetry. This precarious situation often leads to negative side-effects, such as data misuse (abuse) and mismanagement (breach).

Centralised Information Systems

With the advent of secure decentralised systems (blockchain, DLT), we have collectively begun to challenge the status quo of the use of centralised systems for delivering shared processes and information, particularly when that information is commercially valuable or in the public interest to be made public.

Fundamentally, centralised systems are closed, meaning that access is only provisioned via the central authority, and then only a ‘view’ of the central source of truth is provided via a digital interface (APIs); the central source of truth is never truly seen. This causes several issues:

  • Misaligned incentives between the custodians of the information and the owners of the information can lead to privacy and ethical transgressions, particularly when that information is owned by a for-profit entity (consider Facebook and Cambridge Analytica).
  • APIs that are supposed to provide digital access to view and change the underlying information are typically closed-source, error-prone and provide incomplete functionality, inhibiting Innovation.
  • The fundamental inability to view and rely upon the underlying source of truth (without trusting the information) creates information silos, precipitating costly reconciliation processes. A simple example of the manifestation of this issue is reconciliation between banking ledgers: when transferring money between banks, reconciliation processes are required at both ends due to the inability to share a common source of data, caused by the use of multiple centralised systems. Note that in a banking context, trusting an external source of truth is often not compliant with various prudential risk regulations, which require strong operational controls to ensure information integrity.

From an information management perspective, the normative paradigm of message-based design has a number of subtle implications:

  • Obsolescence: Data is immediately out of date.
  • Opacity: The truth of what is contained in the database is never directly observed; the output of an API is only ever a report that is generated from the underlying source of truth.
  • Ostensibility: Messaging-based systems generate errors. This necessitates reconciliation processes to be maintained, particularly when the data being passed around represents valuable rivalrous assets.

Decentralised Information Systems

Centralised systems - by definition - create data silos, causing costly process friction, and are functionally constrained, limiting innovation. This naturally frames an argument for blockchains:

  1. Shared, by default. Data is guaranteed to be both accurate and available as the shared consensus system keeps all data up-to-date for everyone at all points in time.
  2. Programmable, by default. Smart contracts do not require APIs to be written in order to read or write to them; their natively open design provides read/write functions by default. This feature alone provides immense opportunity for digital innovation.

The possibilities for innovation become apparent once presented with an alternative paradigm. Leveraging a decentralised architecture, we can use smart contracts to share the programming that operates the agreement between consumers and their company counterparty. The historical transaction data that the operation of this program generates can also be recorded on a ledger that is distributed between the parties.

In this way, a distributed ledger can be used as the basis for managing the “truth” of what occurs (to the extent that is possible given the reliance on inputs from external sources) such that all parties (such as consumer and a company) are always in agreement with - and always have access to - the data pertaining to their commercial relationship.

Leveraging a distributed ledger design means the data:

  • Is always current;
  • Is always correct (always the agreed truth);
  • Never needs to be reconciled before making business decisions; and,
  • Suffers no errors or omissions according to the shared programming (or if bugs are present, they are known to all parties at once).

In the context of Open Banking, this would mean the defined data sets for transaction and lending accounts would be appended-to using a distributed ledger system that is operated between the consumer (or their chosen delegate) and their Data Holder. The mechanism of keeping the databases synchronised is called consensus, and the shared program that is used to operate that relationship is called a smart contract.

By truly shifting the consumer to the centre of our information systems, we make our economic and civic processes extremely efficient and maximally consumer-centric.

Common Misconceptions of Blockchain Technology

Misconception: Privacy

“Blockchains cannot satisfy privacy requirements because all data is shared on chain.”

This is only true in the most rudimentary of blockchain architecture. There are a number of software design patterns that can satisfy both privacy and transparency requirements, including cryptographic proofs of correctness and public cryptographic attestation combined with private state channels.

Misconception: Speed

“Blockchains are slow; they can’t compete with databases.”

It’s strictly true that blockchains are slow when compared to databases. But we’re not matching apples with apples here. Although it can take several seconds for a transaction to be written to the blockchain, these seconds suddenly become the lower-limit of the speed of your business process, not a database transaction. DLT facilitates the business domain, not the data domain. The information in question could be the lodging of a procurement request, and a few seconds later, the request could be fulfilled and paid, all without relying on an intermediary party to provide a platform to facilitate the trade. DLT/blockchain allows you to transact directly with your counterparty according to rules you have pre-agreed. Ultimately, blockchains do a different thing than traditional databases; they uniquely give businesses real-time operational speed.

Misconception: Scalability

“Blockchains are not scalable”

Blockchain scalability is now broadly considered as a solved problem given recent developments in sharding and zero-knowledge cryptography. Blockchains in fact need very little information to provide an appropriate level of “trustlessness” to access their benefits; the way they are commonly used today is highly inefficient. In all cases the question of scalability should always be considered in terms of the requirements of the use case as many blockchains provide more than adequate scalability properties, and in those cases that it doesn’t, a skilled blockchain software architect can develop a solution that fits in all but the most extreme cases. Of note, Australia’s very own RedBelly Blockchain has achieved extraordinary scalability figures as discussed in the National Blockchain Roadmap.

Misconception: Insecurity

“Blockchains are not secure; people using blockchain systems are consistently hacked.”

This is a common fallacy that tends to be drawn from the experience of public blockchain networks like Bitcoin and Ethereum. Overwhelmingly, “hacks” in relation to a blockchain system are information security failures of centralised systems, typically those which manage cryptographic keys such as cryptocurrency exchanges.

However while not as common, smart-contract-based security incidents can occur. Blockchain software can provide better control over digital assets and processes, but with such increased control comes increased responsibility. With the removal of trusted intermediaries to charge you to simply move your digital assets from one database to another - something that has been trumpetted as a great success of the technology - so comes the removal of some of the convenience of centralised (trusted) control.

Consumer-readiness of blockchain, while having had more development air time, has probably not had the same number of man-hours invested as enterprise DLT solutions, and ironically, will not be ready ahead of enterprise technology and adoption. Take the Australian Stock Exchange (ASX) as a case in point. The control over one's own digital assets, while strictly cheaper than paying an intermediary, comes with a price of convenience as it then falls to the owner of the asset to manage their own transfer, security and recovery processes, with no-one to call if things go wrong. Businesses however have the infrastructure to manage their own affairs with a higher degree of security than individuals, and so while better end-consumer solutions are still in flight, businesses can start to implement blockchain solutions today.



Block8 would be happy to further discuss our thinking on any of the topics covered above, including specific detail on solution architectures and demonstrations of currently working distributed ledger systems developed to address the challenges and opportunities outlined in the Issues Paper and our Response.

Our experts are also available to assist with research mapping the value chains for centralised and decentralised approaches, the identification of the highest-value areas for a consumer-centric data infrastructure, or working with the Government and other members of industry in the development of pilot or production programs.



[1]   National Blockchain Roadmap (DISER 2019)

[2] The word ‘intermediation’ here is used in a pure sense. It does not imply “intermediary”. Managing intermediation may necessitate a custodial entity, or alternatively additional procedural overhead between the transacting entities.

[3] In terms of implementation cost and complexity, some of the cost that would ordinarily be expended in developing an API layer for a regular system would be expended within the logic of the smart contract itself.

About the Author: 


Samuel G Brooks is Block8's Chief Technology Officer.

He is an expert in developing decentralised software products and has designed numerous solutions for startups, enterprise, government and OpenTech since 2014.

Samuel regularly speaks at technology conferences, meetups and podcasts, and holds several advisory positions on technical industry boards and committees. He is a also a heavy contributor to blockchain and fintech-related public inquiry and writes about the nature and benefits of distributed ledger technology on our blog.

Samuel holds a degree in Electrical Engineering from UNSW, and has stayed close to both the code and the latest research ever since encountering Bitcoin in 2011.

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