How To Build A Finance Platform On Ethereum

The limitations of traditional financial services and the urge to overcome them are driving the growth of the Financial Technology (Fintech) sector. Entrepreneurs are focusing on newer technologies like blockchain to solve the financial services delivery challenges. If you are such an entrepreneur, then you are likely wondering how to power your financial platform with blockchain. This guide on how to build a finance platform on Ethereum is exactly what you need!

Contents

What is Fintech?
Financial services challenges that contribute to the growth of fintech
The global market for Fintech
Why should blockchain matter?
Choosing the right blockchain network for your financial platform
A brief introduction to Quorum
Finding the right blockchain network host
How to create a finance platform using Quorum
Have a great idea for a finance platform on Ethereum?

What is Fintech?

Fintech broadly refers to the segment of the financial services industry that uses newer technologies to improve service delivery. The improvement is brought about in various ways, e.g., automation, new channels to access financial services, etc.

Innovative use of modern technology helps businesses and consumers alike to better manage financial transactions. Specialized software enable consumers to use fintech on computers and smartphones, therefore, consumers now have more options to access financial services. Read more about Fintech in this Investopedia definition.

Financial services challenges that contribute to the growth of fintech

The traditional financial services industry faces several challenges, and fintech intends to address quite a few of them. These challenges are as follows:

  • Cyber-attacks: The incidents of data breaches are growing, and the banks and financial services institutions are losing their credibility. Securing data is key to retaining credibility!
  • Regulatory requirements: Financial services industry is heavily regulated, and compliance isn‘t easy.
  • Big data: Big data can be an opportunity for businesses, however, they need to first secure this data. Thereafter, they need the analytics capabilities to utilize this data. Ironically, the explosion of data becomes a challenge if businesses don‘t prepare to tap into the opportunity!
  • AI: Artificial Intelligence (AI) is another opportunity for the financial services industry that becomes a challenge if they are not prepared to secure information and utilize AI!
  • Customers want better services, and they are impatient about it.
  • Attracting and retaining talent is not easy.
  • Digital divide: This is another instance where the financial services institutions can take advantage of the digital technology, or fall in the disadvantageous side of the digital divide!

Read about these challenges in “10 challenges for the financial services industry in 2019”.

The global market for Fintech

Fintech has a growing market globally, and the following statistics make this clear:

 

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Why should blockchain matter?

Remember we spoke about the importance of securing data in the financial services industry, and how that can help in retaining credibility, utilizing big data, and taking advantage of AI? You might also remember the need to deliver better service to customers, and this requires efficiency gain.

Blockchain is well-placed to help here, however, let‘s first understand its key characteristics. These are as follows:

  • Blockchain is a decentralized Peer-to-Peer (P2P) network, and public blockchain networks allow anyone to join. Private blockchain networks allow only trusted parties to join.
  • Transactions are grouped in blocks, which are data structures. Modern cryptography enables linking each block to the previous block, thus giving the appearance of a chain. The name “Blockchain” is derived from this.
  • Computers on the P2P network are called “nodes”, and each node has the entire transaction history. This makes the network a distributed ledger, therefore, we also call it the “Distributed Ledger Technology” (DLT).
  • Digital signatures, data encryption, modern cryptography, and consensus algorithm help in securing data in the network.
  • Hackers need to spend a very high amount of resources to attack a blockchain network, and this reduces their economic incentives. I have explained these features earlier in “How to build your own blockchain Using Node.js”.
  • Ethereum and several other blockchain platforms offer smart contracts, which are pieces of code that execute autonomously. They are transparent, tamper-proof, and their execution is irreversible. Smart contracts can improve contract administration.

Blockchain can add value to the financial services industry, by securing data with a distributed ledger, digital signature, encryption, and consensus algorithm. Distributed ledger and smart contracts can improve efficiency.

Choosing the right blockchain network for your financial platform

Blockchain has advantages for the financial services industry, however, you need to choose the right blockchain network. Ethereum, a reputed smart contract platform is certainly a great choice, however, its public blockchain network isn‘t suitable here due to the following reasons:

  • Anyone can join this network, however, the financial services industry can allow only trusted parties to join their blockchain network.
  • Transactions on the Ethereum public blockchain network are transparent, consequently, this network can‘t meet the data privacy requirements of a financial platform.
  • Ethereum public blockchain network uses the “Proof of Work” (POW) consensus algorithm. This limits the scalability, and transaction throughput is low. Read “Proof of work vs proof of stake comparison” to learn more about POW.

I recommend that you use Quorum, an Ethereum-based blockchain protocol. Read on, as I explain its benefits.

A brief introduction to Quorum

J.P.Morgan has developed Quorum, and they have forked it from Ethereum in a way that it can easily incorporate future updates to Ethereum. Key features of Quorum are as follows:

  • Quorum is a framework for a permissioned blockchain network, therefore, it will allow only trusted parties.
  • It provides a layer on top of Ethereum, which facilitates private transactions.
  • Quorum uses “Constellation”, which is a P2P encrypted message exchange, and it helps in conducting private transactions.
  • This framework uses consensus algorithms like Raft, which expedites transaction validation.
  • Another consensus algorithm in Quorum is “Istanbul BFT”, which is a “Practical Byzantine Fault Tolerance” (pBFT) algorithm, and delivers faster performance.

Read about the features of Quorum in “Quorum 101: Getting started with Quorum”.

Finding the right blockchain network host

Now that you have found the right Ethereum blockchain framework to use, the next step is to find the right blockchain network host. You can‘t use a readily available public blockchain network like Ethereum if you are building a permissioned blockchain network for enterprise use.

You need to carefully analyze available “Blockchain-as-a-Service” (BaaS) options, e.g.:

  • Blockchain on AWS;
  • SAP cloud platform BaaS;
  • Microsoft Blockchain on Azure;
  • IBM Blockchain Platform.

You can read about these options in “Best blockchain network hosts 2019 – Ethereum – Amazon etc.”. I recommend that you use Microsoft Blockchain on Azure in this project since it supports Quorum.

How to create a finance platform using Quorum

I will now take you through the steps to create a finance platform using Quorum, and these are as follows:

1. Study a similar blockchain finance platform project

You might have specific features in mind for the planned finance platform, and I recommend that you study a blockchain project that addresses similar use cases. You can read “The future of blockchain: fintech 50 2019” for a good list of fintech blockchain projects.

For e.g., if you are planning to build a blockchain-powered financial transaction settlement platform, then Ripple is a good example to study. It‘s a blockchain-based network for global settlements. SWIFT, the interbank messaging platform is the leader for this use case in the traditional financial services world.

Read How We Helped a Marketing Company to Build a Back-Office Custom Ads Dashboard

Smart contracts are open-source, therefore, you can study this project and get useful ideas. You can find the Ripple smart contracts in its GitHub repository.

2. Build a development team

Your development team needs the following roles:

  • Business analysts;
  • UI designers;
  • Blockchain developers with Quorum, Ethereum, and Solidity skills;
  • Testers;
  • A project manager (PM).

Blockchain development skills like Ethereum and Solidity are niche, moreover, Quorum is new. Your team might need training and guides, therefore, check out the following:

3. Get a Microsoft Azure BaaS account

To use Quorum on Microsoft Azure BaaS, you first need to get an account there. Do the following:

4. Buy Quorum on Azure Marketplace

The next step is to buy Quorum for using it on the Azure BaaS. You need to take the following steps:

5. Set up your blockchain network using Azure Blockchain Workbench

You now need to set up a Quorum blockchain network on Azure BaaS, and you can use Azure Blockchain Workbench for this. The benefits of using this workbench are as follows:

  • It offers important tools, therefore, you can configure and deploy a blockchain network quickly.
  • The ledger deployment is automatic, moreover, you can use the blockchain commands in Azure Blockchain Workbench to construct the network easily.

The following learning resources will help you to get going quickly:

6. Code Quorum smart contracts on Azure BaaS

Developing Quorum smart contracts is quite like coding Ethereum smart contracts since Quorum is built on Ethereum. This involves the following steps:

  • You need to code smart contracts using Solidity, i.e., the proprietary language of Ethereum.
  • One can‘t modify smart contracts after deploying them, moreover, their execution is irreversible. You need to develop bug-free smart contracts, therefore, keep the logic simple. This makes debugging easier.

Note the following:

  • Azure BaaS uses MetaMask, the popular browser extension that Ethereum developers use.
  • MetaMask injects js in the browser, which is an Ethereum JavaScript API commonly used for Ethereum development.
  • You can code your smart contracts using Remix, a well-known IDE for Solidity smart contract development.
  • Azure BaaS also uses Truffle, which is a very useful framework for smart contract testing and deployment.

You can read “Azure blockchain service development overview” to understand how Azure uses the above tools and frameworks with Quorum. This guide also explains how you can create Quorum private transactions, which are important for a financial platform.

7. Test and deploy Quorum smart contracts on Azure BaaS

The good news about Azure BaaS is that you can avail its robust DevOps capabilities for testing and deployment of your smart contracts. This helps you with several tasks, e.g.:

  • Unit testing and debugging of smart contracts;
  • Test environment management;
  • Deploying smart contracts.

You can read “DevOps for blockchain apps” to get guidance for the above, moreover, “DevOps for blockchain smart contracts – implementation guide” is another important guide for you.

Best software development teams test their code and undertake formal verification steps. However, it‘s hard to implement a verification mechanism for blockchain smart contracts since the required skills are hard to come by!

Blockchain smart contract audit and verification is a costly, time-consuming, and labor-intensive job. You can read more about this in “Blockchain smart contracts: More trouble than they are worth?”.

Microsoft Research offers an excellent solution to this challenge, and it‘s called “VeriSol”, which stands for “Verifier for Solidity”. Developers can use VeriSol to specify what behavior they expect from their smart contracts, and the tool then mathematically verifies if the code meets the specified conditions.

You can read more about VeriSol in its GitHub repository. Azure BaaS DevOps infrastructure has fully integrated VeriSol, therefore, you can now have formal verification of your Quorum smart contracts.

Congratulations! You have just completed your project to build a finance platform on Ethereum.

Have a great idea for a finance platform on Ethereum?

BaaS platforms, tools, and frameworks can certainly help, however, a project to create a finance platform on Ethereum involves several niche skills. This makes it a highly complex project, and you should consider working with a reputed software development company on this project. Our guide “How to find the best software development company?” can help you to choose a capable development partner.

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Aran Davies

Blockchain Expert | Developer | Writer | Photographer
I love all things blockchain and related to app development. What time I have when I am not busy writing for the DevTeam.Space blog of over 350 articles, I spend sitting around wondering what the future will look like 50 years from now.
Aran Davies