Cryptographic Hashes for High-Volume Securities Settlement

Resolve Bottlenecks,
Find Innovative SolutionsGenerate Solutions

Solution Overview

Problem

The traditional settlement process for exchange-traded securities is costly, time-consuming, and prone to errors, with trades often taking up to three days to settle and resulting in disputed transactions that are costly to the financial industry.

Innovation Solution

Implementing a real-time or near real-time gross settlement system using cryptographic hashes, where trades are cryptographically-signed and processed through a distributed, append-only ledger, allowing for immediate verification and audit of transactions, thereby reducing the need for manual review and dispute resolution.

Engineering Contradictions & Design Principles

VSEngineering Contradiction Analysis

1Reliability

If traditional settlement process is used, then trade execution can proceed, but settlement time is extended to three business days and errors increase

Engineering Contradiction:

Improvesettlement accuracyVSAvoidsettlement time

Core Design Contradiction:

ReliabilityVSLoss of time

Solution Approach 1:

The patent replaces the manual mechanical review process with cryptographic verification. Cryptographic signatures and hash functions automatically validate trade authenticity and integrity, eliminating the need for manual dispute resolution periods while ensuring settlement accuracy. This substitution of cryptographic mechanisms for manual processes resolves the contradiction between fast settlement and error prevention.

Inventive Principle:

Principle #28Mechanics substitution (Replace mechanical system)

Solution Approach 2:

The patent introduces a distributed ledger as an intermediary between trade execution and settlement. The ledger immutably records trade data with cryptographic hashes, serving as a trusted mediator that enables real-time verification without requiring lengthy manual review periods. This intermediary structure allows immediate settlement while maintaining reliability through cryptographic validation.

Inventive Principle:

Principle #24Intermediary (Mediator)

2Reliability

If manual review and dispute resolution periods are implemented, then transaction errors can be detected, but processing time increases and costs increase

Engineering Contradiction:

Improvetransaction verificationVSAvoidsettlement speed

Core Design Contradiction:

ReliabilityVSProductivity

Solution Approach 1:

The patent applies preliminary action by embedding cryptographic signatures and hash functions into trade data before settlement. These pre-configured security mechanisms automatically verify trade authenticity and integrity at the moment of settlement, eliminating the need for subsequent manual review periods. This preliminary cryptographic validation enables both high reliability and fast settlement speed simultaneously.

Inventive Principle:

Principle #10Preliminary action

Solution Approach 2:

The system enables self-service verification through cryptographic mechanisms. The distributed ledger and cryptographic hashes automatically validate trades without requiring external manual intervention. Each participant can independently verify trade authenticity using the cryptographic signatures, eliminating the need for centralized manual review while maintaining transaction verification reliability.

Inventive Principle:

Principle #25Self-service

3Loss of time

If distributed ledger with cryptographic hashes is used, then settlement time is reduced to real-time, but system complexity increases

Engineering Contradiction:

Improvesettlement durationVSAvoidsystem architecture

Core Design Contradiction:

Loss of timeVSDevice complexity

Solution Approach 1:

The patent applies universality by using cryptographic hash functions and digital signatures as multi-functional components. These cryptographic mechanisms simultaneously provide data integrity verification, authentication, and immutable recording across the distributed ledger. This multi-functionality reduces the need for separate verification systems, thereby managing complexity while enabling real-time settlement.

Inventive Principle:

Principle #6Universality (Multi-functionality)

Solution Approach 2:

The patent changes the fundamental parameter of trust verification from manual processes to cryptographic validation. By transforming the verification mechanism into mathematical hash functions and digital signatures, the system achieves real-time processing. This parameter change from human-based to algorithm-based verification enables speed improvement while containing complexity through standardized cryptographic protocols.

Inventive Principle:

Principle #35Parameter changes

Data Source

PatentUS10515409B2Distributing work load of high-volume per second transactions recorded to append-only ledgers

Publication Date: 2019.12.24 DOMUS TOWER INC

AI summary

Various of the disclosed embodiments concern systems and methods for expediting the settlement of securities traded on an exchange. A settlement system can generate electronic records of financial transactions by bundling a trade report, clearing instructions, etc., into a cryptographic ledger. Current cryptographic ledgers do not handle transactions at the rate which securities are traded. In order to improve rate processing for cryptographic ledgers sharded transaction trees are used.