Distributed Ledger Trading System with Segmented Minting and Supervisory Nodes
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Solution Overview
Problem
Current cryptocurrency exchange systems face limitations such as lack of trust due to unregulated institutions, scalability issues, inability to implement regulatory controls like AML and KYC, and high energy consumption, which restrict the adoption and security of cryptocurrency transactions.
Innovation Solution
A distributed ledger system that allows trading of multiple cryptocurrencies and fiat currencies on a single platform, with separate nodes for minting, supervisory, and user operations, ensuring compliance with regulations through user certification and efficient resource utilization, enabling interoperability and atomic swap operations.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If traditional cryptocurrency exchange systems are used, then users can trade cryptocurrencies, but the systems pose increased financial risk due to untrusted institutions and lack of regulation
Solution Approach 1:
The system segments the exchange platform into multiple independent issuing institutions, each operating their own minting nodes. This segmentation distributes trust across multiple regulated entities rather than concentrating it in a single untrusted institution, while each institution maintains operational independence to issue and manage their own digital assets on the shared distributed ledger.
Solution Approach 2:
A regulated intermediary institution is introduced as a supervisory node that issues user certificates after verifying compliance with AML and KYC regulations. This intermediary acts as a trusted mediator between users and the decentralized system, providing regulatory oversight and compliance verification without centralizing control over asset issuance or transactions.
2Ease of manufacture
If mining-based cryptocurrency systems are used, then digital assets can be created, but significant computing power and electricity consumption are required creating negative environmental impact
Solution Approach 1:
The system replaces the mechanical mining process (proof-of-work) with a digital certification process (proof-of-stake/authority). Instead of consuming computational power to solve cryptographic puzzles, digital assets are created through authorized minting nodes that verify compliance and issue assets based on regulatory certificates, eliminating the need for energy-intensive mining operations.
Solution Approach 2:
User compliance verification (KYC/AML checks) is performed in advance by supervisory nodes before digital assets are minted. This preliminary action ensures that all users are pre-verified and compliant with regulations, allowing the system to issue assets without requiring energy-intensive mining to secure the network or prevent fraud.
3Reliability
If distributed ledger systems are used for cryptocurrency trading, then transparency is improved, but transaction speed and throughput are significantly slower than traditional financial systems
Solution Approach 1:
The system segments transaction processing into different node types with specialized functions: minting nodes for asset issuance, supervisory nodes for compliance verification, and user nodes for transactions. This segmentation allows parallel processing of different transaction types and reduces bottlenecks, improving overall throughput while maintaining the transparency benefits of distributed ledgers.
Solution Approach 2:
The system performs selective verification rather than full consensus for all transactions. Supervisory nodes verify compliance for new users and asset issuances, while routine transactions between verified users can be processed with lighter validation, reducing processing time while maintaining adequate oversight and transparency.
4Adaptability or versatility
If traditional cryptocurrency systems are used, then decentralized trading is enabled, but regulatory controls such as AML and KYC cannot be implemented
Solution Approach 1:
The distributed ledger system serves multiple functions simultaneously: it enables decentralized peer-to-peer trading while also supporting centralized regulatory oversight. The same infrastructure that provides decentralization and transparency also accommodates supervisory nodes that issue compliance certificates and enforce AML/KYC regulations, making the system universally applicable to both decentralized and regulated requirements.
Solution Approach 2:
Supervisory nodes act as regulatory intermediaries within the decentralized network. These nodes issue user certificates that verify AML/KYC compliance and enable regulated entities to operate within the decentralized system. The intermediary layer bridges the gap between decentralized autonomy and regulatory requirements, allowing both to coexist.
Data Source
AI summary
A method for enabling trade of cryptocurrencies, tokenized assets and/or fiat currencies on a single distributed ledger system with nodes, wherein: at least some of the nodes are minting nodes; at least some of the nodes are user nodes; and at least some of the nodes are supervisory nodes. The method includes, at the supervisory nodes: creating user certificates; at the minting nodes: minting digital assets, each minted digital asset comprising data on an asset type, an asset value and a first owner; at the user nodes operated by users having user certificates created by the supervisory nodes: requesting or accepting an exchange transaction to exchange digital assets with another user, wherein the exchange transaction request includes information on the amount of the first asset type to be exchanged, the second asset type to which the first asset type is to be exchanged and an exchange rate.