NATIONAL ENGINEERING SCHOOL OF TUNIS

Industrial Engineering Department

Bibliographic Project

Blockchain technology in the

banking industry

Elaborated by :

Machraoui Amal

Matteli Tasnim

Mentored by :

M. Laarif Mehdi

1st year GI

Academic year : 2023/2024

Acknowledgement

We would like to express our sincere thanks to our mentor, Mr. Laarif Mehdi,
for his constant support throughout our work. His care, expertise, and insightful
advice greatly contributed to the success of our bibliographic project. We are also
grateful to him for the valuable time he has dedicated for us, his precise guidance,
as well as his pedagogical qualities.
We would also like to express our gratitude to the entire teaching and admin-
istrative staff of ENIT.
Finally, we would like to thank all the individuals who have contributed, di-
rectly or indirectly, to the completion of this project.

2
Table of contents

List of Figures 5

General introduction 1

1 Overview of blockchain 2
1.1 Introduction of chapter 1 . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Insight into Blockchain . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2.1 History of blockchain . . . . . . . . . . . . . . . . . . . . . . 2
1.2.2 Definition and key characteristics of blockchain . . . . . . . 3
1.3 Blockchain structure and functionality . . . . . . . . . . . . . . . . 4
1.4 Blockchain types . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.4.1 Public blockchain . . . . . . . . . . . . . . . . . . . . . . . . 7
1.4.2 Private blockchain . . . . . . . . . . . . . . . . . . . . . . . 8
1.4.3 Consortium blockchain . . . . . . . . . . . . . . . . . . . . . 8
1.4.4 Hybrid blockchain . . . . . . . . . . . . . . . . . . . . . . . . 8
1.5 Synthesis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.6 Conclusion of chapter 1 . . . . . . . . . . . . . . . . . . . . . . . . . 10

2 Blockchain in the banking industry 11

2.1 Introduction of chapter 2 . . . . . . . . . . . . . . . . . . . . . . . . 11
2.2 Issues of banking industry . . . . . . . . . . . . . . . . . . . . . . . 11
2.3 Revolutionizing banking businesses with
Blockchain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.3.1 Money Transfer . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.3.2 Asset-backed securitization . . . . . . . . . . . . . . . . . . . 13
2.3.3 Smart Contracts . . . . . . . . . . . . . . . . . . . . . . . . 14
2.3.4 Accelerated Data Sharing . . . . . . . . . . . . . . . . . . . 15
2.3.5 Digital Identity Verification . . . . . . . . . . . . . . . . . . 15
2.4 Challenges to implement Blockchain technology in banking industry 16
2.5 SWOT analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.6 Conclusion of chapter 2 . . . . . . . . . . . . . . . . . . . . . . . . . 20

3
3 Case study: DBS bank 21
3.1 Introduction of chapter 3 . . . . . . . . . . . . . . . . . . . . . . . . 21
3.2 Introduction to DBS bank . . . . . . . . . . . . . . . . . . . . . . . 21
3.3 Motivations of DBS bank . . . . . . . . . . . . . . . . . . . . . . . . 21
3.4 Project Ubin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.4.1 Project Ubin’s different phases . . . . . . . . . . . . . . . . . 22
3.4.2 Results and achievements . . . . . . . . . . . . . . . . . . . 24
3.5 Project Orchid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.5.1 Project Orchid’s different phases . . . . . . . . . . . . . . . 25
3.5.2 Commercial and Operational factors . . . . . . . . . . . . . 27
3.6 Conclusion of chapter 3 . . . . . . . . . . . . . . . . . . . . . . . . . 28

General conclusion 29

References 30

4
List of Figures

1.1 The architecture of Blockchain[5] . . . . . . . . . . . . . . . . . . . 5

1.2 Accepting/Rejecting blocks[5] . . . . . . . . . . . . . . . . . . . . . 6
1.3 Blockchain types [author] . . . . . . . . . . . . . . . . . . . . . . . . 7

2.1 Conventional and modern routes of money transfer [12] . . . . . . . 13

2.2 Blockchain technology in asset-backed securitization [6] . . . . . . . 14
2.3 Smart contracts mechanism[12] . . . . . . . . . . . . . . . . . . . . 15
2.4 Blockchain SWOT [author] . . . . . . . . . . . . . . . . . . . . . . . 18

3.1 PBM Lifecycle Stages [10] . . . . . . . . . . . . . . . . . . . . . . . 26

3.2 Building Blocks of the Orchid scheme [10] . . . . . . . . . . . . . . 27
Acronyms

ABS Asset-backed securitization.

ABSG Association of Banks in Singapore.

AML Anti-Money Laundering.

ASX The Australian Securities Exchange.

BoC Bank of Canada.

BoE Bank of England.

CBDC Central bank digital currency.

DLT Distributed ledger technology.

DVP Delivery versus payment.

IoT Internet of Things.

KYB Know Your Business.

KYC Know Your Customer.

MAS Monetary Authority of Singapore.

PBM Purpose Bound Money.

RTGS Real-time gross settlement.

SGX Singapore Exchange.

General introduction
In the current landscape of the digital age, we are witnessing the rise of
blockchain technology as a transformative force across various sectors. With the
expansion of digital transactions and data, there arises a critical need for secure,
transparent, and decentralized systems to manage and verify these interactions.

This end-of-year project will delve into the concept of blockchain and its pro-
found implications for the banking industry. As it explores the multifaceted land-
scape of blockchain technology, it will analyze its transformative potential and its
application within the banking sector. So, it will be organized into three main
chapters, each examining the distinct aspects of blockchain technology and its ap-
plication in the banking industry:

The first chapter will provide a comprehensive introduction to blockchain tech-

nology, covering its definition, key characteristics, historical context, and under-
lying structure. It will also explore the various types of blockchains, including
public, private, consortium, and hybrid, to gain a deeper understanding of their
functionalities.
The second chapter will examine the integration of blockchain technology within
the banking industry. It will discuss the inherent issues faced by traditional bank-
ing systems and how blockchain is revolutionizing banking businesses. Addition-
ally, it will analyze the challenges associated with implementing blockchain tech-
nology in banking and conduct a SWOT analysis to evaluate its strengths, weak-
nesses, opportunities, and threats.
The third chapter will explore an example of a case study on DBS bank, un-
derlining various blockchain projects that the bank took part in like project Ubin
and highlighting real-world applications and outcomes of blockchain adoption in
banking.

Through this structured approach, we aim to provide a comprehensive under-

standing of blockchain’s impact on modern banking practices.

1
Chapter 1

Overview of blockchain

1.1 Introduction of chapter 1

While witnessing the rapid evolution of innovative technologies, none of them
caught up to the prominence of blockchain. In this chapter, the origins of blockchain,
its definition and its essential Features will be untangled. Following this, blockchain
architecture and its types will be unraveled. At last, a detailed synthesis will be
provided to facilitate comprehension of our topic.

1.2 Insight into Blockchain

1.2.1 History of blockchain
Blockchain was introduced in the year 2008 by Satoshi Nakamoto, who is be-
lieved to be a Japanese man, born in 1974. While Satoshi Nakamoto’s identity
remains undisclosed, it’s certain that he is among the most intriguing individuals.
Not only did he devise a complex system, but he also proposed solutions to various
flaws within the existing monetary system.[2]
But the blockchain technology roots date back to 1982, when David Chaum
was the first known person to propose a blockchain-like protocol in his Doctor of
Philosophy thesis.[9]
Then in 1991, Haber and Stornetta first suggested the concept of time printing
a digital document to ensure they cannot be backdated and are tamperproof. In
successive years, incorporation of Merkle Trees1 allowed collection of several digital
documents into a block which enhanced their security. In the late 90s, usage of
1
Merkle Trees: It is a hierarchical data structure with block data at leaf nodes and hash
values at non-leaf nodes for quick integrity checks in blockchain and distributed systems.

2
digital currencies became quite predominant.[11]

1.2.2 Definition and key characteristics of blockchain

Blockchain is the innovative database technology that’s at the heart of nearly
all cryptocurrencies. By distributing identical copies of a database across an en-
tire network, blockchain makes it very difficult to hack or cheat the system. While
cryptocurrency is the most popular use for blockchain presently, the technology
offers the potential to serve a very wide range of applications.

Blockchain technology has distinct characteristics that make it a revolution-

ary solution for digital transactions. Its features can be classified into functional
attributes and emergent ones.
Delving into the functional characteristics, it’s evident that immutability takes
precedence. The blockchain ensures the permanence and inalterability of transac-
tion records. Once a transaction is added to the blockchain, it cannot be altered
or erased.
Next, the distributed aspect of the blockchain. This technology has a record-
keeping system where a ledger is shared among multiple participants or nodes2 .
This allows for transparent and secure tracking of transactions across the network.
That means when a transaction occurs, it is recorded on the ledger3 and distributed
to all participants so that they are provided with information about the others on
the network.
Additionally, the decentralized nature of the blockchain means that no single
authority governs the network; instead, it is the nodes that control it by managing
transactions. The blockchain platform also offers high security through the as-
signment of unique identities to each data on the network, making it impossible to
add, update or delete data from the network. Finally, consensus is a protocol that
aligns all nodes of a distributed blockchain network on a single data set, ensuring
agreement on transaction validity and fostering reliability and security across the
network.
The next focus lies on delving into the emergent characteristics of blockchain
technology. Transparency is a significant aspect, as the blockchain ledger is public
and accessible to anyone.
Anonymity is also a feature, as participants are associated with anonymous
addresses to protect their privacy.
2
Node: It is a basic unit in a network or data structure, capable of sending, receiving, or
storing data, often interconnected with other nodes.
3
Ledger: refers to a decentralized, immutable database that records all transactions across a
network of computers.

3
 Auditability, also known as provenance, refers to the ability to verify and re-
view transactions recorded on the blockchain. Trust is also crucial in blockchain
because it helps people believe in the system. Blockchain is designed to be reli-
able and secure, making it trustworthy for recording transactions. It can create a
tamper-proof record of transactions, which can facilitate trust between parties in
business transactions. [15] [16] [17]

In conclusion, blockchain technology has several characteristics that make it a

reliable and secure solution for recording and storing data.

1.3 Blockchain structure and functionality

Blockchain technology enables multiple communicative parties to perform dif-
ferent transactions without intermediaries. Verification and validation of these
transactions are conducted by specialized nodes called miners. The valid trans-
actions are carried out in a data structure called a block. The execution of the
current transaction depends on the previously committed transactions. In this
way, this technology is helpful to restrict double-spending in the cryptocurrency
system. The architecture of Blockchain is shown in figure 1.1.

We can see that the chain of blocks is created by the hash4 of the previous
block. A block is divided into two components : block header and list of transac-
tions.

Starting with the block header which is composed of three elements.

The first element is the hash code of the previous block which links the current
block with the previous one.
The second element is mining statistics that are used to create the block.
And the last element is the Markle tree root which is the base for verifying the
integrity of all transactions residing in the block. To generate a hash code of the
current block, we use the hash code of the previous block. Hence, if an attacker
tries to modify the block contents, he/she has to modify all the hash code of the
rest of the chain which is practically difficult to carry out. Thus, it makes the
Blockchain tamper proof.

4
Hash: It is a unique cryptographic fingerprint generated from data within a block, serving
as a digital signature that ensures the integrity and immutability of the block’s contents.

4
 Figure 1.1: The architecture of Blockchain[5]

The second component of the block is a list of valid transactions. The number of
transactions in a block depends upon the block and transaction size. Authorization
and authentication of the transactions are done by asymmetric cryptography. Once
a transaction is included in the chain, it cannot be removed or altered. Blocks are
chained together, where each block includes a hash of the previous block, and a
chain of blocks “Blockchain” is created.
A block will be accepted in the chain if it is valid and has proof of work, which
is a computationally difficult hash generated by the mining procedure. As it has
a secure hashing technique it ensures that if any of the blocks is modified, all
succeeding blocks will have to be recomputed. Figure 1.2 depicts how the longest
chain is accepted and added into the Blockchain and other shorter chains are re-
jected.

Miners try to mine blocks on their own with the list of transactions that are
yet to be added. Once a block is mined, it transmits to all other nodes in the
network for verification.
Out of so many blocks in the network, the block with the highest consensus
will be accepted to be added into the network. Other blocks are considered as
orphan blocks and rejected later by the network. Orphan blocks contain trans-
actions already in the latest valid block, but may also include new transactions
awaiting processing in future mining.[5]

5
 Figure 1.2: Accepting/Rejecting blocks[5]

The transactions made by the blockchain users are provided to the network via
software like web services, mobile applications and so on. Once a transaction is
submitted, the software sends it to a particular node or to a set of nodes. This
does not mean that the transaction is added to the blockchain. The transactions
would be in the queue of the publishing node and will be added in blockchain after
the node publishes a block. [5]

1.4 Blockchain types

The need for different types of blockchain is due to our diverse case uses and
organizations. Each one offers certain advantages and disadvantages which makes
it suitable for our requirements. We can have four types of blockchain; public
blockchain, private blockchain, concertium blockchain and hybrid blockchain.

6
 Figure 1.3: Blockchain types [author]

1.4.1 Public blockchain

It is the one with no central authority; everyone can participate in the network,
has access to records, conduct transactions and perform mining operations. In
other words, there is no barrier as to who can use it.
This type of blockchain is open and transparent; every authorized node has
entry to all recorded information on the network. Also, due to its transparent
nature, the blockchain functions as a large-scale network which facilitates the
creation of so many records and this prevents hackers from tampering with the
entire network. Additionally, public blockchain is permissionless, it is decentralized
because every participant has a copy of the ledger and there are no restrictions
that control the network. [18]
Despite the benefits that it offers, the public blockchain has high energy con-
sumption because this type of network requires good computer hardware to enable
individuals to participate. Moreover, the transaction and verification processes in
the blockchain are very slow due to its large size. As examples of this type we
have Bitcoin and Ethereum. [18]
Some of the use cases of this type are voting in governments and fundraising
in businesses or initiatives.[19]

7
1.4.2 Private blockchain
It is managed by a central authority who selects the nodes participating in the
network. This kind of blockchain is open for authorized users only.
The rate of transaction processes is high due to its small size so the verification
of each node is less time consuming. It is also balanced because only some users
have access to the network which leads to its improvement.
Furthermore, this type is very customizable. It allows organizations to have a
suitable network responding to their specific needs by altering it with their rules
and requirements.
However, the centralized facet of this type can make some information restric-
tively invisible for participants which limits the transparency of the network. This
results in the lack of trust between nodes.
As examples of this type we have Hyperledger, Corda. Some of the use cases
of this type are internal voting, asset ownership and supply chain management.[19]

1.4.3 Consortium blockchain

The consortium blockchain, also known as the federated blockchain, is a per-
missioned type, needing the permission of some administrative associations (and
not a single organization like the private type). These associations work together
to control the network.
The presence of multiple organizations can contribute in making the blockchain
decentralized authoritatively and this makes it more secure.
Also,the small number of users (selected by the governments) makes the verification
process faster and results in reduced time consumption. Thus this makes this
technology more flexible.
In spite of these advantages, this type of technology might have negative char-
acteristics. In fact, organizations can hide information from participants which
can cause opacity. [19]
To illustrate this type, we can see the case of Tandermint and Multichain. This
type of blockchain can be used in Banking, payments and businesses.[19]

1.4.4 Hybrid blockchain

This type of blockchain combines the attributes of both private and public
blockchains. It is divided into two parts, one part is controlled by some organiza-

8
tions, and the other part is decentralized like the public blockchain.
The most advantageous thing about this blockchain is that it cannot be hacked
because most users don’t have access to the network.This type of blockchain can
choose which transactions and records to be public but this can make it less trans-
parent.
Examples of Hybrid Blockchain are Ripple network and XRP token.
This type can be used in the healthcare industry, government, real estate, and
financial companies.[19]

In conclusion, the various types of blockchain each with its unique character-
istics, advantages and disadvantages contribute to the diverse landscape of tech-
nologies, shaping the future of digital innovation.[19]

1.5 Synthesis
Blockchain technology is characterized by its focus on security and immutabil-
ity, securing the undergoing integrity of transaction records. Technically it operates
in a decentralized way, removing the necessity for a central authority and placing
control in the hands of network nodes. This decentralization not only enhances
transparency but also strengthens the security of the entire system.
One of the features of blockchain is its capacity to offer both transparency,
facilitated by a public ledger visible to all members, and participant anonymity
through the use of anonymous addresses. This unique combination allows for a
secure and transparent environment where users can engage in transactions with
a certain level of privacy.
The base of blockchain’s reliability lies in its tamper-proof record of transac-
tions. This feature implants trust in business dealings, as parties can be assured
that once a transaction is recorded, it cannot be altered.
The potential applications of blockchain technology reaches a wide array of
industries. In finance, it has the capability to revolutionize traditional systems
through decentralized financial structures, providing increased accessibility and
inclusivity. In supply chain management, blockchain enhances trust and trans-
parency by offering an immutable record of the entire supply chain process. Health-
care records can be securely managed using hybrid blockchain solutions, ensuring
both privacy and accessibility.
In essence, blockchain technology stands as a groundbreaking innovation with
the power to reshape industries by addressing core concerns such as security, trans-
parency, and trust. Its decentralized and tamper-proof nature introduces a new
era of reliability and efficiency in various applications, promising transformative

9
changes in the way we conduct business and manage data.

1.6 Conclusion of chapter 1

To sum up, seeing blockchain technology’s complicated nature explains its role
as a leading innovation. This chapter has rigorously explained blockchain’s origins,
core features, complex architecture and different types.
The following chapter will revolve around surveying blockchain technology in
banking industry, focusing on different ways to revolutionize banking businesses
with blockchain and the challenges faced while implementing this innovation in
the banking sector.

10
Chapter 2

Blockchain in the banking

industry

2.1 Introduction of chapter 2

Witnessing its amazing characteristics and advantages, Blockchain is used in
different sectors like IoT, cryptocurrencies, healthcare etc. But the most outstand-
ing one is finance and banking industry and that’s why this chapter will reveal the
issues that exist in banking industry, study the different aspects where blockchain
can intervene in order to revolutionize this sector and unravel the challenges in
implementing blockchain technology in banking industry.

2.2 Issues of banking industry

The bases that traditional banks are using are outdated and have several gaps.
Starting with high costs and inefficiencies, manual processes and dependence on
intermediaries will increase time consumption and risks of operational expenses.
Consider this process as an illustration: when the first customer sends money to
the second one, the bank acts as an intermediary. It takes the money from the first
one’s account, sends it to the second one’s correspondent bank which deposits it
into the recipient’s account and each intermediary bank charges a fee. This makes
the process slow and expensive. [20]
Secondly, every traditional bank encounters security weaknesses because of its
centralized aspect. Its systems are exposed to cyberattacks, hacking and fraud
which threatens customer data and financial assets. When a hacker violates the
server, he will have access to customer’s records and will initiate unauthorized
transfers, sell data on the dark web and will even threaten to release sensitive
customer information. [21]

11
 Besides, these banks also have problems in transparency and trust because
the person controlling the system has access to all the information of customers
and this can hinder financial inclusivity. As an illustration, when encountering
an advertisement from a bank offering significant bonuses for depositing funds, a
thorough examination The fine print reveals hidden fees and conditions that di-
minish the advertised benefits. This analysis illustrates how the bank may deceive
customers. [21]
Banks are also faced with money loss because of fighting money laundering and
terrorism. According to Global Anti-Money Laundering Survey 2014, banks have
spent about $10 billion to check the identity of a customer and to make sure that
the money isn’t going to bad users which also takes a long time. This process is
called AML and KYC1 . [21]

2.3 Revolutionizing banking businesses with

Blockchain
To meet the demands of rapidly evolving industries and fintech while over-
coming potential hurdles, banks are increasingly turning to new technologies for
consistent and efficient operation. As part of this technological shift, blockchain
technology emerges as a versatile tool with extensive applications beyond digi-
tal currencies and cryptocurrencies, particularly within the finance and banking
sectors.
The list below outlines some of these diverse applications of blockchain tech-
nology.

2.3.1 Money Transfer

The blockchain technology namely mobile wallets have made the international
transactions quite fast and easy without risk of information loss. Mobile wal-
lets usually work as installed mobile apps and offer significant varieties in their
functions. The important question arises here that why and how payments are pro-
cessed using the blockchain technology. The answer lies in the fact that blockchain
provides users with the most efficient, easier, transparent, and secure way based
on DLT2 .
1
KYC: It is an essential procedure to confirm and verify the customer’s identity when opening
an account and periodically over time.
2
DLT: It is a decentralized ledger technology that uses the resources of numerous nodes to
guarantee data security and transparency

12
 Figure 2.1 presents both conventional and modern ways of money transfer
through banks A, B, C, and D. The conventional method adopts a long route and
consumes much time and effort and charges a significant fee. On the contrary,
the modern way of international payments using blockchain technology and DLT
makes the whole process rapid and safe.[12]

Figure 2.1: Conventional and modern routes of money transfer [12]

2.3.2 Asset-backed securitization

ABS is based on future cash flow to issue the asset-backed securities. The key
of ABS is whether there will be a steady cash flow in future.
According to the different types of assets, the ABS can be divided into the securi-
tization of physical assets, the securitization of credit assets, the securitization of
securities assets and the securitization of cash assets.
The traditional ABS involves many kinds of assets and various individuals and
every asset is likely to involve a variety of financial risks. Considering blockchain
technology has the advantages of decentration, distributed consensus and tamper-
resistant information, the application of blockchain technology in asset-backed
securitization can greatly reduce financial risks in traditional ABS .

13
 Figure 2.2: Blockchain technology in asset-backed securitization [6]

Blockchain technology can protect data security, especially in the aspect of

trading data of financial assets and the information of different parties is syn-
chronous by using distributed ledgers and consensus mechanisms, so the settlement
between different parties becomes easier. All phases of asset-backed securitization
cannot leave the blockchain platform.[6]

2.3.3 Smart Contracts

One of the most significant applications of blockchain technology is smart con-
tracts that works on the decentralized mechanism as well as provides temper-proof
algorithmic execution of a transaction. Smart contracts are basically a series of
digital contracts where two parties have to agree on the given terms and conditions
before execution of the transaction or real-time transfer of funds.
Smart contracts provide programming protocols through which the transaction
is automated and executed. This mechanism is conducted to avoid unnecessary
costs, international fund transfer charges and to access the speedy funds. The
only thing in smart contracts to be considered is to attain the level of trust of
both parties that their transaction will be executed at a greater pace, without
paying costs, and with high degree of trustworthiness.[12]

14
 Figure 2.3: Smart contracts mechanism[12]

2.3.4 Accelerated Data Sharing

Basically, banks need to store the information of the customers in their own
databases and then by encrypting the information, a summarized profile can be
generated and stored in a blockchain. When it is necessary to share the data, the
main data provider receives a notification and a query is generated. By doing so,
all parties can find, search, and explore the external big data by not deforming
the information of their core businesses.
Here, the significance of the whole process is dependent on encrypting the in-
formation of the customers where it is necessary that the summary information of
the profiles and original data must be consistent to avoid misleading results of the
profiles. By providing consistent information, blockchain technology automatically
realizes the encrypted information records the transaction.It ultimately helps the
banking and financial industry in reducing the extra work related to organizing
the information.[12]

2.3.5 Digital Identity Verification

Digital identity verification is basically a biometric system of identifying a
person’s fingerprints, facial prints, or thumb impressions. In blockchain technology,
digital identity works differently for companies, for IoT devices and for individuals.

15
Companies use this technology to collect and store data of their customers to use
them for different purposes.
Particularly, in the finance and banking industry, it is highlighted that the
blockchain identity management system needs to be adopted to ensure the security
of the users and creditors. Many financial institutions and banks have introduced
the KYC and KYB 3 strategies and the core storage point is centralized where
the information of each customer is integrated. In this form of centralized system,
there are possibilities that the information of customers would be stolen and they
would be susceptible to hackers.
Thus, blockchain technology provides a user-to-user experience through a de-
centralized mechanism of storing individual customer information so that there is
no information theft.[12]

2.4 Challenges to implement Blockchain technol-

ogy in banking industry
The implementation of blockchain technology in the banking industry encoun-
ters some challenges, each presenting significant barriers to its continuous integra-
tion and widespread adoption.

Firstly, operational risks pose a substantial threat to blockchain implementa-

tion in the banking sector. For instance, the potential for system vulnerabilities,
highlighted by incidents such as the 2016 DAO hack in the Ethereum blockchain,
highlights the importance of robust security measures to protect against unautho-
rized access and tampering with sensitive financial data. [3]
Secondly, financial risks also dominate, with concerns about the potential for
financial losses due to system failures, such as hardware or software flaws, disrup-
tions, or breaches of database integrity. These risks were exemplified by the 2018
Coincheck hack, where hackers exploited vulnerabilities in the exchange’s systems
to steal over $500 million worth of cryptocurrency. Such incidents highlight the
importance of robust risk management strategies and eventuality plans to mitigate
the impact of unforeseen events on blockchain systems.
Additionally, the costs associated with designing, training, and implementing
blockchain technologies present a meaningful barrier for banks, particularly small
institutions with limited resources. For example, ASX faced challenges in imple-
menting its blockchain-based clearing and settlement system, with costs expanding
3
KYB: It is a process similar to KYC, but instead of focusing on individual clients, it concerns
the identification and the verification of business entities.

16
to over $100 million due to complexities in design and integration with existing
systems. [3]
Moreover, regulatory uncertainty surrounding cryptocurrencies like Bitcoin
complicates blockchain adoption efforts. For instance, the lack of clear regula-
tory structures in many jurisdictions creates legal uncertainties for banks seeking
to transact in cryptocurrencies or use blockchain-based solutions for financial ser-
vices. This regulatory ambiguity was exemplified by the legal battles faced by
cryptocurrency exchanges like Coinbase and Bitfinex over compliance with AML
and KYC regulations. [3]
Furthermore, scalability issues, such as the limited transaction efficiency and
high energy consumption of major public blockchain networks like Bitcoin and
Ethereum, pose significant challenges for widespread adoption in the banking in-
dustry. For instance, the Bitcoin network’s limited capacity to process transactions
has led to crowding and high transaction fees during periods of peak demand, mak-
ing it unsuitable for high-volume financial transactions. [3]
Lastly, the unique characteristics of cryptocurrencies, such as their volatility
and lack of intrinsic value, present additional complexities for banks considering
their adoption. For example, the extreme price volatility of cryptocurrencies like
Bitcoin and Ethereum can pose risks to banks’ balance sheets and financial sta-
bility if not properly managed. Additionally, concerns about the potential for
regulatory crackdowns or bans on cryptocurrencies in certain jurisdictions create
legal uncertainties for banks seeking to integrate them into their operations. [3]
In conclusion, while blockchain technology holds immense promise for revo-
lutionizing the banking industry by enabling secure, transparent, and efficient
financial transactions, its widespread adoption faces formidable challenges rang-
ing from regulatory compliance and operational risks to financial, regulatory, and
reputational concerns.
Overcoming these challenges will require collaborative efforts from banks, regu-
lators, policymakers, and technology providers to develop robust regulatory frame-
works, enhance security measures, reduce financial risks, and build public trust in
blockchain technology.

2.5 SWOT analysis

To better understand the role of blockchain technology, we will provide a SWOT
analysis to evaluate its internal factors which are strengths and weaknesses, and
external factors which are opportunities and threats.

17
 Figure 2.4: Blockchain SWOT [author]

Strengths:

• Security: By using cryptographic techniques, blockchain becomes immune

to fraud and unauthorized access.

• Decentralization: Eliminating a central authority strengthens the security

and makes it more difficult for malicious actors to attack or manipulate the
system.

• Transparency: Blockchain provides transparency by making all transactions

visible to users by using public ledger. This transparency promotes trust
among participants since they can independently verify and validate trans-
actions.

18
Weaknesses:

• Scalability: Handling a large number of transactions quickly might present

a hurdle to the blockchain networks which will result in delays and escalated
transaction costs.

• Recent Technology: Blockchain technology has been recently explored and

is still under development. This may result in unpredicted technical issues
that can’t be solved easily.

• High Cost: The infrastructure, energy requirements and ongoing mainte-

nance costs for blockchain technology are considerably higher compared to
traditional databases.

• Resistance to Change: Existing banking systems and processes may need

to be repaired, and employees may require retraining, leading to potential
organizational resistance.

Opportunities:

• Business Process Optimization: Blockchain can optimize various business

processes by offering a secure and transparent method to track and verify
transactions. This can lead to increased efficiency, reduced fraud, and im-
proved overall business operations.

• Global Financial Inclusion: Blockchain has the potential to promote global

financial inclusion by providing secure and accessible financial services to
individuals in underserved or unbanked regions. Decentralized financial sys-
tems can empower individuals with limited access to traditional banking.

• Faster (International) Payment Transfers: Blockchain facilitates faster and

more efficient international payment transfers by eliminating intermediaries
and streamlining the settlement process. This opens up opportunities for
businesses and individuals to conduct cross-border transactions with reduced
costs and processing times.

19
 Threats:

• Unfamiliarity with the technology: Ignorance about blockchain technology

may cause organizations to overlook opportunities for innovation and can
lead to misconceptions and skepticism.

• Competing Technologies: The emergence of new and competing technologies

like quantum computing or alternative decentralized systems poses a threat
to the prosperity and dominance of blockchain.

2.6 Conclusion of chapter 2

To wrap up, blockchain technology can present a convincing solution to some
challenges facing the banking industry. Its natural features have successfully of-
fered great opportunities to enhance efficiency, trim costs and foster trust within
the industry.
The upcoming chapter will feature a case study of DBS Bank, focusing on two
spotlighting projects: Project Ubin and Project Orchid. These projects exemplify
the practical applications and advantages of blockchain technology in a real-world
banking context.

20
Chapter 3

Case study: DBS bank

3.1 Introduction of chapter 3

Observing how blockchain technology can revolutionize the banking industry
and offer it new opportunities, this chapter will showcase different blockchain
projects and businesses that DBS bank took part in, all while highlighting the
bank’s motivations and the outcome of these actions taken.

3.2 Introduction to DBS bank

DBS, the Development Bank of Singapore, a commercial bank headquartered
and listed in Singapore, provided a full range of services in consumer and corporate
banking. It operated over 280 branches across 18 markets, with a growing presence
in the three principal Asian axes of growth: Greater China, Southeast Asia, and
South Asia.
Euromoney, a finance magazine, awarded DBS the World’s Best Digital Bank
in 2016 and again in 2018. In August 2018, DBS received yet another notable
award: it was named by Global Finance magazine as the Best Bank in the World.
The bank initiated its digital strategy in 2009 under the persistent push of new
CEO Piyush Gupta. Between 2009 and 2014, DBS invested heavily in technol-
ogy and undertook radical changes to transform the entire enterprise for digital
innovation.[13]

3.3 Motivations of DBS bank

One of the upsetting factors that pushed DBS into a digital transformation
was the many fintech start-ups that had emerged in the market. These digital

21
markets were providing a diverse array of inventive financial services and products
which were reshaping the traditional banking systems. In this instance, DBS faced
a challenge from the Chinese e-commerce giant, Alibaba, which was occupying
any available niche in the market. The company had gained a large share in the
Singaporean-based company Lazada, a major player in the South Asian market.
These Fintech companies posed a significant competition for the banking system
by introducing their debit and credit cards. Therefore, this competition saw a
decline in the number of people utilizing traditional banking services.
The other reason was that DBS was experiencing institutional constraints for
acquisition-led and organic expansion in the region. DBS could not obtain an
Indian-based bank which promped them to consider alternative methods of scaling
their presence in the one billion markets. Their only available recourse was through
digital transformation. Hence, they had to establish a digital bank because it would
reach a larger audience and was flexible to the market. This approach allowed them
to enter the market successfully.
The Asian market was rapidly evolving and adopting digital technology. Thus,
the growing demand for digital services across Asia required a change for DBS too.
In 2014, there were already 700 million digital users, and the number was expected
to rise to 1.7 billion by 2020.[24]
Back in 2009, DBS bank had the lowest customer satisfaction scores of any
bank in Singapore, so digital transformation and implementing blockchain tech-
nology into the banking sector became crucial.[14]

3.4 Project Ubin

Project Ubin is an initiative led by the MAS in collaboration with DBS Bank
and other industry participants to examine the use of Blockchain and DLT for
settlement of payments and securities. The project aims to assist MAS and the
industry gain a deeper understanting of the technology and the potential benefits
it may offer in this regard. It is a multi-year multi-phase project, with each phase
dedicated at solving the urgent challenges faced by the financial industry and the
blockchain ecosystem. The project reached its successful conclusion in 2016 after
five phases.[10]

3.4.1 Project Ubin’s different phases

• Phase 1: This phase acted as the foundational stage. MAS announced in
November 2016 that it will collaborate with R3, a DLT company, and a as-

22
 sociation of financial institutions on a proof-of-concept project to perform
inter-bank payments using Blockchain technology. The consortium engages
several banks including DBS bank and Information Systems, which serves
as the technology provider.[10]

• Phase 2: This phase explored further the technical aspects of implementing

a blockchain-based system for payments and securities settlements.
MAS and The ABSG announced in October 2017 that the consortium which
they are leading had successfully developed a software prototype of featuring
three distinct models for decentralized inter-bank payment and settlements,
incorporating liquidity-savings mechanisms.[10]

• Phase 3: MAS and SGX announced in August 2018 that it is collaborating to

develop DVP1 capabilities for settlement of digitized assets across different
blockchain platforms.[10] This will enable financial institutions and corpo-
rate investors to execute parallel exchange and final settlement of tokenized
digital currencies and securities assets, enhancing operational efficiency and
lowering settlement risks.[10]

• Phase 4: The BoC, BoE and the MAS together published a report in Novem-
ber 2018 which evaluates alternative models that could improve cross-border
payments and settlements. The report investigates existing challenges and
considers alternative models that could eventually lead to upgrades in speed,
cost and transparency for users.
MAS and BoC later connected their respective experimental domestic pay-
ment networks, specifically Project Jasper and Project Ubin, and announced
on 2 May 2019 a successful experiment on cross-border and cross-currency
payments using central bank digital currencies.[10]

• Phase 5: Phase 5 continued the work from Phase 4 of Project Ubin and
explored the development of the multi-currency payments model.
This phase network offers connectivity interfaces for other blockchain net-
works to connect and integrate smoothly, and additional features to support
use-cases such as DVP with private exchanges, conditional payments and
escrow for Trade, and payment commitments for Trade Finance.
1
DvP: It is a method of settlement that essentially ensures the transfer of securities only after
payment is complete.

23
 In addition to technical experimentation, this phase also aimed to inves-
tigate and demonstrate the business value of a blockchain-based payments
network such as in enabling business opportunities that would benefit from
or be made viable through greater cost efficiencies as compared to existing
systems. Together with its partners, MAS conducted workshops and discus-
sions with over 40 financial and non-financial firms to evaluate the potential
benefits. The findings are captured in the Phase 5 report, which studies the
use of blockchain technology in commercial applications across different in-
dustries, and how these applications could take advantage from integrating
with the blockchain-based payments network prototype developed.[10]

3.4.2 Results and achievements

The aim of Project Ubin was not to provide immediate advantages for individ-
ual banks but rather to focus on developing blockchain-based solutions intended
to enhance efficiency and security across the entire Singaporean financial system.
Through their participation in Project Ubin, DBS and other stakeholders gained
significant insights into the capabilities of blockchain technology across domains
like trade finance, international payments, and digitized securities, such as:

• Improved Operational Efficiency: Project Ubin successfully demonstrated

the feasibility of using blockchain to achieve RTGS2 with characteristics like
full transaction privacy and settlement certainty. This indicates a potential
future where inter-bank transactions and settlements happen much faster
and with fewer errors. [10]

• Reduced Transaction Costs: Optimizing settlements through blockchain has

the potential to considerably reduce transaction costs for banks. Although
Project Ubin didn’t directly result in saving money for DBS, it set the foun-
dation for future efforts that might bring about this advantage. [25]

• Enhanced Security: Blockchain’s DLT ensures a heightened level of security

and tamper-resistant recording of transactions Therefore, Project Ubin’s ex-
ploration of this technology paves the way for a more secure financial system
in Singapore. [25]

2
RTGS: It’s a payment system facilitating immediate, individual transaction processing be-
tween banks or financial institutions, ensuring real-time fund transfers without delays.

24
 • Increased Confidence: The success of Project Ubin boosted confidence in the
potential of blockchain for financial services. This could encourage further
investment and exploration of blockchain solutions by DBS and other finan-
cial institutions in Singapore. [8]

• Regulatory Clarity: Project Ubin helped MAS in obtaining useful under-

standing into the regulatory aspects related to blockchain technology. This
may lead to clearer regulations down the line, making it easier for DBS and
other banks to adopt blockchain technology more widely. [25]

3.5 Project Orchid

While collaborating with central banks like DBS bank, MAS has started exper-
imenting with CBDCs3 s and DLT. As follows project Ubin and other experiments
that focused on cross-border transactions that concerns financial organizations,
Project Orchid, initiated at the Singapore FinTech Festival in 2021, seals the first
expansion of these experiments into the local retail payment sector.
The broad objective of Project Orchid is to develop the technology infrastructure
and technical competencies necessary for digital Singapore dollar such as CBDCs,
Explore potential use cases for a programmable money in Singapore.
Project Orchid is a multi-year, multi-phase exploratory project examining the
various design and technical aspects pertinent to a retail CBDC system for Singa-
pore, from its functionalities to its interaction with existing payment infrastruc-
tures. Project Orchid will build on the learnings from the Global CBDC Challenge
organized by MAS and its global partners in 2021.[10]

3.5.1 Project Orchid’s different phases

• Phase 1: This phase of project Orchid explores PBM which is money pro-
grammed for designated use.[10] It all starts with making money more ef-
ficient, traditional currency can be minted as digital money such as CBDC
and get it wrapped with a set of programming logic called smart contracts.
It means you can be specific about whom it can be used by, when and where
it can be used even down to what it can be used on and how.[29]

3
CBDC: it’s a digital currency issued by central banks. Its value is linked to the issuing
country’s official currency in this case Singapore.

25
 Figure 3.1: PBM Lifecycle Stages [10]

Different scenarios exist to use PBM :

- Government to Person: E.g. government disbursement
- Person to Government:E.g. paying taxes
- Corporate to Person: E.g. corporate vouchers, rewards points
- Person to Corporate: E.g. commit to spend
- Person to Person: E.g. school allowance, purpose bound donation

• Phase 2: The industry group including DBS bank formed in Phase 2 ex-
panded the use of PBM in new scenarios with a focus in commercial appli-
cation in Singapore’s financial landscape. MAS, together with the industry
group, published the Orchid Blueprint, which sets out the development of
core infrastructure components and learnings from the various industry pi-
lots and industry engagements.
Project Orchid states precisely building blocks for digital money infrastruc-
ture in Singapore and how utilizing it in the banking sector can be put in
motion.[10]

26
 A brief explication of the identified building blocks are as follows:

Figure 3.2: Building Blocks of the Orchid scheme [10]

- Settlement Ledger: A system for recording digital money transfers, with

supporting properties such as atomic settlement4 of digital tokens.
- Tokenization Bridge: Integrate current account-based settlement systems
with ledgers that support tokenized forms of digital currency.
- Programmability Protocol: Using PBM as a common agreement to identify
the conditions for the use of digital money.
- Name Service: A service that converts unhandy wallet addresses into user-
friendly alternative identifiers that are readable and meaningful for verifica-
tion.
- Future Blocks: This project allows new technologies to be attached to as
required to amplify digital money capabilities.[10]

3.5.2 Commercial and Operational factors

Apart from the functional features of digital money, the categorization of digital
money should be commercially feasible and its operations doable for its stakehold-
ers.

The development of the project is accompanied by the following principles:

- Market Efficiency: Compatibility and seamless integration with current and fu-
ture banking and payment ecosystems.
- Safety: Supervising risks, ensuring infrastructure is designed and operated with
utmost safety to uphold financial stability.
- Ease of Use: Limited disruption to existing merchant acceptance channels (e.g.
4
Atomic settlement: It refers to a method of finalizing a financial transaction in which all
components of the transaction either occur together or none occur at all.

27
QR) and consumer user experience.
- Commercial transparency: Open for existing service supplier, merchant acquir-
ers to integrate and participate. The scheme must be climbable and technology
neutral.
- Commercial viability for members: The pricing must be fair and transparent.[10]

3.6 Conclusion of chapter 3

In conclusion, DBS Bank’s involvement in innovative initiatives like Project
Ubin and Project Orchid showcases the transformative power of blockchain tech-
nology in Singapore’s financial sector. These projects underscore the industry’s
recognition of blockchain’s potential to revolutionize traditional banking practices,
fostering efficiency and transparency.
However, despite these advancements, uncertainties persist regarding the future
path of digital currencies. Moving forward, investors must remain adaptable, con-
tinuously analyzing emerging trends and challenges. Yet, the collaborative efforts
of institutions like DBS Bank pave the way for a future where financial systems
are more inclusive, efficient, and resilient.

28
General conclusion
This end-of-year project provided a detailed exploration of blockchain technol-
ogy and its implications for the banking sector. It helped us understand the concept
by defining blockchain and examining its key characteristics, historical context,
structure, functionality, and various types. Following this, the focus shifted to the
application of blockchain in banking, addressing the industry’s key issues and how
blockchain can revolutionize banking operations.
The project also discussed the challenges in implementing blockchain technol-
ogy in banking, along with a SWOT analysis to evaluate its strengths, weaknesses,
opportunities, and threats. An example of a case study of DBS Bank highlighting
project Ubin and project Orchid in collaboration with the Monetary Authority of
Singapore, offered us some perceptions into real-world blockchain applications.
However, this emerging technology remains challenging to master. People still
lack comprehensive knowledge and expertise to fully exploit its potential. There is
a pressing need for continuous learning, skill development, and hands-on experience
to navigate the complexities of blockchain technology. Additionally, ongoing re-
search and collaboration are essential to address the evolving nature of blockchain
and its applications in banking.

29
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