Investment giant Goldman Sachs has been awarded a patent for its proposed SETLcoin cryptocurrency settlement system.
The US Patent and Trademark Office (USPTO) announced the news on July 11 with the publication of the company’s patent. The patent is titled, “Cryptographic currency for securities settlement.”
The last time we heard about Goldman Sachs’ SETLcoin was back in late 2015, when the company made headlines worldwide after filing the patent application.
The SETLcoin system could change the way the world trades. It’s proposed as a way to avoid traditional clearinghouses. It makes trades instant, secure, and accurate – which seems appropriate for a blockchain-based economy.
How Does SETLcoin Work?
The Goldman Sachs cryptocurrency settlement system involves a system for settling securities trades using a built-in cryptocurrency. When the application was first filed in December 2015, the application outlined methods for exchanging SETLcoins for digitized stocks for firms like Google and Microsoft, as well as cryptocurrencies like bitcoin and Litecoin.
The patent application also described how SETLcoin uses a wallet system. Customers own a SETLcoin wallet, and that wallet contains a variety of digitized assets – including a single security or multiple denominations of the same security.
That may not sound that special until you discover the proposed future uses of the system. The goal of SETLcoin is to make it easier to trade securities – even denominations of securities.
You could own a 1 IBM-S SETLcoin that’s valued at 100 IBM Shares, for example. Your wallet could contain 1 IBM-S SETLcoin along with 2 GOOG-S SETLcoins which are worth a certain number of Google shares. Customers could exchange a single IBM-SETLcoin for one or more GOOG SETLcoins. Or, they could exchange SETLcoins for 13,000 USD SETLcoins, 5 bitcoins, or 100 Litecoins.
Goldman Sachs initially filed the application in October 2014. The application lists two investors, including Paul Walker, co-head of the bank’s technology division, and Phil Venables, chief information risk officer for the bank.
Why SETLcoin Is So Important
The modern day settlement system isn’t ideal. It’s not suited for our modern, digital world.
Today’s settlement system allows for trades between buyers and sellers. When a trade is made between a buyer and seller, a clearing house like the National Securities Clearing Corporation (NSCC) matches the trade instructions as received from both of the trading parties. This process of matching is called clearing.
After the successful matching of trade details, the clearing house initiates the settlement process. The clearing house transfers securities from the seller’s account to the buyer’s account, then transfers payments from the buyer’s account to the seller’s account.
This traditional settlement process is inefficient and time-consuming. It can take anywhere from 1 to 3 business days, depending on the type of security traded. There are also security risks: one of the parties could default during the trading period, which means all parties (including the clearing house) are exposed to risk.
The Goldman Sachs clearinghouse system plans to fix inefficiencies in the system. It aims to replicate the functions of a clearing house in an instant, accurate, and secure way.
Ultimately, SETLcoin could change the entire nature of investments. It could remove the need for traditional clearinghouses while making investment trading more secure than ever before. Stay tuned for more information about SETLcoin as the Goldman Sachs platform rolls out over the coming years.