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Shared Ledger, Distributed Ledger, Blockchain, Oh My!
Friday, September 30, 2016 5:35 AM

Dean Borland, SCMS, CUDE, VP Product Development, Credit Union Resources

At first blush, blockchain may conjure up negative connotations. After all, blockchain is the underlying technology for Bitcoin, the digital asset and payment system introduced by Satoshi Nakamoto in 2009. Bitcoin is a global cryptocurrency that has its proponents and detractors. But blockchain is not Bitcoin; it is the data processing infrastructure upon which Bitcoin relies and exists.

Simply put, the Bitcoin blockchain is a network of public “nodes” that function as individual ledgers, each of which maintains a full record of all of the transactions ever executed on the network. Unlike traditional, centralized ledger systems that rely on a single trusted party to maintain an accurate database of transactions, blockchain transaction authentication is achieved by arrangement of data “blocks” and “chains” that are validated through the consensus of all of the nodes on the network. The processing protocol and the network of nodes create the “strength in numbers” that makes blockchain processing appealing.

In its 2016 Annual Report, the United States Treasury Department's Financial Stability Oversight Council (FSOC), acknowledged the potential innovation and disruption blockchain (also referred to as “distributed ledger” or “shared ledger”) technology could impose on the financial system.

According to the report, “Distributed ledger systems may mitigate risk and improve resilience in financial networks in a number of ways. Because distributed ledgers can be designed to be broadly accessible and verifiable, they could provide a valuable mechanism for enhancing market transparency. By eliminating the need for some transactions to flow through trusted third parties, distributed ledgers could reduce concentrated risk exposures to those firms and infrastructures. In addition, by improving the speed and accuracy of settlement systems, distributed ledger systems could reduce the counterparty and operational risks which arise when financial assets are exchanged.”

With an eye to exploiting potential benefits of distributed ledger processing, CUNA and CO-OP Financial Services have undertaken initiatives to explore distributed ledger opportunities to benefit credit unions.

In a May 2, 2016, news release, CO-OP Financial Services and TMG announced a collaboration to commission a body of work by Mercator Advisory Services on blockchain technology to help credit unions make wise decisions regarding emerging digital ledger technology. By mid-June, CO-OP, TMG, and Mercator Advisory Group reported that they had “developed and begun testing a strategic decision framework for blockchain—something the companies have found does not exist today. The tool eventually will serve as an evaluation template for financial institutions exploring use cases for the emerging digital ledger technology.”

CUNA has taken a different approach. Teaming with the Mountain West Credit Union Association and John Best, Best Innovation Group, CUNA is spearheading an initiative to establish a collaboration funded by credit unions to study the feasibility of a permissioned credit union blockchain network. CUNA’s process will be managed by a steering committee, chaired by Rudy Perguia, president/CEO, Royal Credit Union, Eu Claire, Wisc., that will oversee the activities of separate committees chartered to explore network development and application (software) selection.

The collaboration of credit union participants, which will be managed by John Best, will consist of a group of credit unions who will each host a blockchain “node” and support the initiative with a financial contribution: $1,000 for credit unions having assets <$500M, $5,000 for credit unions having assets in the range of $500M to <$1B, and $10,000 for credit unions having assets >$1B. The network of credit union nodes will serve as a laboratory for the design and testing of a proprietary credit union distributed ledger network and its potential uses.

For those who wish to take a deeper look at blockchain technology, CUNA and Mountain West Credit Union Association offer these facts:

  • At its most basic level, blockchain technology is a private transaction database. However, in contrast to a traditional database, information on a blockchain can be accessed by participants without the permission of a central administrator. Rather, the blockchain is managed as a network of computers, much like the internet, with each connected participant’s computer defined as a “node.” Each node has a record of the entire blockchain, ensuring the integrity of transactions;
  • Because each node has a record of every encrypted transaction, the blockchain is also called a shared ledger. Think of “ledger” as an accounting ledger or list of transactions that can be viewed by all parties. In a traditional ledger, transactions are registered with trusted third parties;
  • If you want to share information or change ownership of an assets, you need to contact the trusted third party, follow the right procedures, and the trusted third party will transfer ownership;
  • On the blockchain, knowledge of ownership is shared with all registered users. Each member of the blockchain has their own register of every transaction; and
  • All individual registers are regularly compared to correct errors and ensure agreement about the accuracy of records.


Blockchain technology uses public-key encryption, which is virtually impossible to breach because a message can be unlocked only when a public and private element, held solely by the recipient, are linked. As a result, the system is considered highly resistant to tampering or fraud.