Future of Finance


MetaMUI uses digital identity to invent a fast, scalable blockchain

The “trilemma” has become a fixed objection to the adoption of blockchain technology. According to it, a blockchain-based system cannot be decentralised, private and scalable at the same time. Instead, insists the trilemma, trade-offs must be made. So when a blockchain protocol claims to have solved the trilemma, it is worth listening to. MetaMUI is an identity-based blockchain that dispenses with intermediaries, protects private information and is capable of settling millions of transactions per second. And to use it, nothing more elaborate than a smartphone is required. Which is why MetaMUI is attracting interest from issuers of central bank digital currencies (CBDCs), security tokens and Non-Fungible Tokens (NFTs). Its creators also think it holds the key to the Metaverse. Its secrets? Parallel transaction processing plus tying digital assets to digital identities. 

The paper written by Satoshi Nakamoto that launched the entire blockchain revolution was entitled Bitcoin: A Peer-to-Peer Electronic Cash System. The title is misleading. Unlike notes and coins, Bitcoin is not a peer-to-peer form of currency, and nor is blockchain a peer-to-peer system of payment. Nor are any of the thousands of other crypto-currencies that have followed the example of Bitcoin. 

The persistence of intermediaries in classic blockchain

A true peer-to-peer currency and payment system would function like physical cash. In other words, when a buyer passes notes and coins to a seller, both parties know that the seller now owns the cash. The transaction is finalised once the notes and coins are in the possession of the seller. There is no need for any further confirmation that the transaction is settled.

On a blockchain network, by contrast, transactions cannot be settled peer-to-peer. Instead, a group of self-selecting intermediaries settle the transaction. These “miners” are paid fees to solve complicated mathematical puzzles that prove “blocks” of transactions are valid because they are linked to previous transactions (“proof of work”).

That is not all. Once a “miner” has proved a “block” of transactions is valid, their finding must be broadcast to all other members of the blockchain network. A majority of members of the network then verify the finding before the “block” of transactions is added to the shared and immutable electronic ledger which records all transactions and holdings.

This process of “mining” and achieving a majority “consensus” is far removed from peers delivering cash to peers. While classic blockchain eliminates the need for a centralised intermediary – namely, banks to deduct payments from the accounts of buyers and credit them to the accounts of sellers – it introduces a new set of decentralised intermediaries. 

Switching the blockchain model from Proof of Work (in which miners compete to solve the puzzles) to Proof of Stake (in which miners pledge coins for the chance to be selected randomly to solve the puzzles) does not alter the fact that miners are intermediaries. In both, some members of the network prove transactions are true and a majority validate their work.

Limitations of speed and scalability in classic blockchain

The persistence of intermediaries is not the only obstacle to genuine peer-to-peer transactions raised by classic blockchain. Mining and securing a majority “consensus” take time. And the more transactions that occur, the larger the “blocks” become, and the longer it takes to perform the calculations. Currently, the best blockchains can settle 1,000-3,000 transactions a second (TPS).

This compares unfavourably with conventional payments networks. Credit and debit card networks, for example, manage 5,000 TPS. At lower levels than that – and Bitcoin manages seven TPS – the blockchains that support crypto-currencies lack the speed to support high levels of activity. In other words, classic blockchains are not scalable

This is a non-trivial shortcoming. In terms of the volume and value of financial transactions it can generate, the Internet of Things (IoT) is already generating streams of micro-transactions. When cars consume electricity, and refrigerators order food, payments technologies will need to support trillions of transactions a second, most of them for nugatory sums. Classic blockchain cannot do this.

Lack of scalability also means that, when volume rises, so do transaction costs. When Bitcoin transaction volumes rose sharply in early 2018 and late 2021, average fees rose 150-250 times to US$50-60. That reflects the fact that classic blockchain networks process transactions serially, so the only way for users to move up the queue is to pay miners more.

Personal privacy shortcomings of classic blockchain

In summary, classic blockchain does not provide peer-to-peer payment. It is not fast enough or scalable enough to compete with existing payments systems. Nor can it reduce transaction costs. For these reasons, blockchain cannot fulfil the ambition of Satoshi Nakamato to displace banks. But there is another sense in which it falls short of the intentions of its creator.

Nakamoto also intended Bitcoin transactions to make no use of personal data. To deliver this, he introduced a fragile solution. Ownership of a crypto-currency is tied not to the owner but to a private key. If the private key is lost, the crypto-currency is lost. Private keys, a string of letters and numbers, are easy to lose. Maybe 10 million Bitcoin are already lost forever. 

It is because of these shortcomings that large institutions are adopting “distributed ledger” blockchains, or truncated forms of the technology. These are private networks, in which existing intermediaries survive, and none can join without their identity being disclosed to the other members of the network. Often, members even interact via a centralised intermediary.

The need for a new approach to blockchain implementations

It follows that any blockchain-based system that wishes to respect the original vision of Satoshi Nakamoto, and deliver a genuine, distributed, peer-to-peer network that can dispense with both centralised and decentralised intermediaries; support a high volume of transactions at low cost; and preserve the privacy of its users, must adopt a different approach.

This is what MetaMUI does. MetaMUI is an identity-based blockchain that offers a form of digital cash that peers can exchange directly. Value can be transferred without miners doing “proof of work” or a majority “consensus” approving the transfer. The operations of MetaMUI are also private and fully decentralised, allowing settlement of more than one million TPS. But how? 

How MetaMUI achieves peer-to-peer payment

First, MetaMUI replicates on blockchain technology the division of labour in the existing financial system between central banks acting in concert with commercial banks and all other actors in the economy. Instead of offering either a public, non-permissioned blockchain network or a private permissioned blockchain network, MetaMUI operates a hybrid of both.

That hybrid – a public permissioned blockchain – sounds like an oxymoron. In fact, it means that, unlike a conventional permissioned network that pre-validates members, anybody can apply to join a public permissioned blockchain network. However, their admission must be approved initially by a single algorithmic validator “node” and latterly, as the network matures, by a majority vote. 

In MetaMUI, the initial validator mode is an “algorithmic” central bank (ACB). As more central banks join the network, the ACBs will form a governing council for the network. Banks that want to use the central bank money of any ACB must become “nodes” on the network. Their admission depends on meeting the membership criteria set by the ACBs, and at least half the ACBs voting in favour. 

Once a bank is a node on a network, an ACB can issue its digital currency into the digital wallet of the bank. This is central bank money. The bank nodes can then create commercial bank money by lending the central bank money in their digital wallets many times. The responsibility of the ACB is to contain the ability of the bank nodes to manufacture endless quantities of commercial bank money.

The ACB achieves this by retaining a fixed ratio of liabilities (deposits) to assets (loans) on the balance sheets of the bank nodes. ACBs are called “algorithmic” because they use artificial intelligence (AI) and machine learning to control the ratio of the liabilities to money in circulation, and so ensure stable monetary conditions. Decisions are executed automatically via the code of the blockchain network. 

This “chain code” constantly limits the ability of the bank nodes in the network to create unlimited quantities of commercial bank money through their lending activities. The code burns tokens when commercial banks threaten to cause inflation by creating an excess number of tokens through over-enthusiastic lending and mints new tokens when too little lending threatens deflation.

To assess whether to burn or mint currency tokens, the AI algorithm consumes vast quantities of financial and other data. The data trains the algorithm, and so improves its performance over time, but it remains true to its original objective of ensuring the quantity of money in circulation is always sufficient to avoid deflation but not so plentiful as to cause inflation.

Any individual or company that wishes to borrow the digital currency, or use it to pay for labour, goods, services or taxes, accesses it via a “mobile node” on the same network. These nodes provide users with access, via their smartphones, to digital wallets to pay and receive tokenised money and self-sovereign identity (SSID) wallets to store the data that proves their identity.

It is the SSID that enables users, both companies and consumers, to authorise payments to suppliers. In addition to storing verifiable credentials such as passports and drivers’ licence, the SSID allows the MetaMUI blockchain network to use face, iris and fingerprint recognition to authenticate transactions by payers to payees. SSIDs are, in effect, digital signatures that can be used by both parties.

Digital identity as the basis of the MetaMUI system

The SSID is a crucial component of the MetaMUI blockchain model. In a classic, trustless, anonymous blockchain, confidence that a payment will reach the right person depends on reaching consensus about what is true. The MetaMUI blockchain replaces this slow and computationally expensive approach with SSIDs that tie digital assets to digital identities. 

This enables the MetaMUI blockchain to support high transaction volumes, such as those seen in payments and foreign exchange because transfers of tokens are bound to the identity of the user. The identities are registered and maintained on the MetaMUI blockchain. These identities do not dispense with the need for Private Keys to unlock the tokens, which are stored in the digital wallet of the user. 

Indeed, the authenticity of the SSIDs as digital “signatures” rests on the private keys in the digital wallet of the user being linked to matching public keys registered on the Public Key Infrastructure (PKI). By linking SSIDs to Public Keys, the MetaMUI blockchain enables any counterparty to complete transactions via the PKI.

This has the further advantage of reducing the need for users to prove their identity repeatedly. Instead of each counterparty running their own identity checks on customers, using different combinations of attributes from official sources to meet their own requirements, MetaMUI SSIDs allow users to share random identifiers from their SSID wallets. 

How tying ownership to identity enhances security

By eliminating the need for market participants to share attributes repeatedly SSIs also enhance privacy and security, by reducing the risk of any one of multiple databases being hacked and personal identities stolen. They are certainly more secure than the “federated” identities offered by Facebook and Google, by which one identity check serves for many.

By tying ownership of digital currency to the identity of the owner, the MetaMUI system substantially reduces the risk of catastrophic loss or theft of the currency if the private key cannot be found. Digital identities allow the private keys to an asset to be re-set once identity is re-confirmed by the SSID wallet. Once private keys are re-set, digital signatures can be re-registered.

SSIs also contribute to faster transaction speeds. In the MetaMUI system, pairs of counterparties which trade frequently can use their SSIDs to identify each other. This so-called “pairwise trust” establishes sufficient trust between counterparties for them to settle transactions between themselves peer-to-peer, because SSIDs are a secure form of authentication.

Why the MetaMUI blockchain can settle millions of transactions per second

But the main reason MetaMUI can settle millions of TPS is not counterparty authentication via digital identities. It is the use of parallel processing. Unlike a classic blockchain network, in which the nodes are decentralised but transactions are processed centrally and sequentially by mining and majority consensus, MetaMUI processes transactions simultaneously. 

Parallel processing is a crucial feature of the MetaMUI blockchain. Traditional, Bitcoin-style blockchains are notoriously slow to settle transactions. This is because they must settle transactions sequentially – one by one. This means that the transaction that is second in the queue for settlement must wait until the first is completed, and so on throughout the chain of transactions. 

The MetaMUI blockchain solves this problem by processing transactions in parallel, at the same time. It is this capability that makes the MetaMUI blockchain scalable. Conventional blockchains currently achieve 1,000-3,000 TPS at best. Parallel processing, on the other hand, faces no practical limits on scalability.

It is this unlimited scalability that matches MetaMUI to the demands of the era of the IoT, machine-to-machine commerce and programmable money, which will create a need for TPS measured in the millions. The MetaMUI blockchain can support transaction volumes at these levels, simply by adding more nodes to the network and processing transactions in parallel.

In fact, in the MetaMUI model, the more bank nodes, the greater the processing capacity. Adding nodes also enhances the security of the system, because it makes it harder to assemble a majority consensus to disrupt the system. MetaMUI can add nodes without slowing down the settlement process because each digital currency runs on a separate but inter-operating blockchain. 

That interoperability even extends to blockchains built on other protocols. The MetaMUI identity-based technology is able to incorporate other blockchain protocols as sub-ledgers of its own network, making it easy for assets to be exchanged atomically between separate blockchain protocols, peer-to-peer in exactly the same way as if the assets were on the same blockchain network. 

How the MetaMUI blockchain works on smartphone networks

Digital currency tokens issued on to MetaMUI blockchain networks are also more accessible. The volume of data processed by classic blockchain consumes too much computer time, energy and capacity to be of practical use on any data transmission network other than the Internet. This is a major shortcoming when smartphones are the principal distribution device.

MetaMUI, by contrast, allows transactions to be settled between smartphones through 5G networks and Near Field Communication (NFC) networks as well as between computers through the Internet. This is because the combination of parallel processing and digital identities allows the code necessary to settle peer-to-peer transactions to run on the smartphones and not on the network.

The ability to run a blockchain on smartphones is enhanced by the ability of one party to process off-line. This extends the reach of MetaMUI networks. In theory, anybody with a device can be a node in a MetaMUI network. Smartphone connectivity also enables issuers of digital currencies on to MetaMUI networks to provide payments and other services to anybody who owns a smartphone.

Why CBDCs are an ideal use-case for MetaMUI blockchains

This is one reason why central bank digital currencies (CBDCs) are an obvious use-case for MetaMUI technology. Three central banks which have issued or tested a CBDC – namely, the Central Bank of the Bahamas, the Eastern Caribbean Central Bank (ECCB) and the Central Bank of Nigeria – have all named reaching the unbanked (“financial inclusion”) as a primary objective.

Providing citizens with the basic banking services they need to earn a living, or welfare payments, or relief in the event of a natural disaster, can be delivered in the form of CBDCs issued into digital wallets on smartphones. Citizens can prove their eligibility to send and receive payments by acquiring and using SSID and currency wallets on the MetaMUI network.  

The MetaMUI technology already underpins the mineral-backed CBDC issued by the Sovereign Yidindji Government (SYG) in northern Australia. It enables Yidindji citizens to make peer-to-peer payments in retail outlets and government offices by using their smartphones, bypassing the banking system altogether. MetaMUI SSIs have also equipped the SYG with a SSID-like national identity system.

CBDCs launched elsewhere prove the low volumes and slow transaction speeds of classic blockchain are intolerable for central banks. Nor can a CBDC succeed if there is a risk of value being forfeit (through loss of private keys) or stolen (by hackers). Most CBDCs also need to respect personal privacy and, despite its ambition to be anonymous, classic blockchain does put private information at risk.

MetaMUI satisfies the need of CBDCs for speed, scalability, recoverability, and privacy. As a Cloud-based system, it is also simple to implement by comparison with integrating and testing a CBDC technology linked to existing systems. Central banks do not have to jettison or link to existing systems to make use of the MetaMUI blockchain. They can retain their servers or their Cloud provider.

Simple implementation extends to building links to other CBDCs to support cross-currency payments by exchange of CBDCs. This matters, given that foreign exchange has emerged as an obstacle to linking CBDC platforms to complete cross-border, cross-currency payments – an idea advanced by the Bank for International Settlements (BIS) as a way to cut the cost of cross-border payments. 

The MetaMUI blockchain can circumvent this challenge by hosting multiple blockchains concurrently. Each of these blockchains can run independently of each other and still transact with each other. Currencies can be exchanged directly and atomically, currency for currency. Even multi-currency transactions are possible where a foreign exchange node is added to the network. 

Security tokens are a second use-case for the MetaMUI blockchain

Yet digital currencies are only the most obvious application of the MetaMUI blockchain. In practice, the identity-based, parallel processing  token model is applicable to financial assets other than cash equivalents. Asset-backed tokens are a clear-cut use-case, because MetaMUI establishes links between tokens and the issuers and the assets that back them.

Issuers can create verifiable SSIDs on the MetaMUI identity-based blockchain which prove their authenticity as issuers of tokens. Likewise, issuers can publish (or procure from third parties on the MetaMUI SSID blockchain) certificates which authenticate the existence of the physical assets, art, real estate, intellectual property or income streams which are being tokenised. 

When asset-backed tokens are being traded peer-to-peer, MetaMUI supports atomic settlement of tokenised assets against tokenised cash. Since the tokenised assets are also bound to the SSID of the owner, changes to the register and payment of turnover or capital gains taxes can happen at the same time as the trade. There is no need for separate registration and tax reporting or payment.

How MetaMUI can reduce the risk of loss and fraud in NFT markets

As with digital currencies, digital identities ensure that security tokens can be recovered if private keys are lost. Which is a benefit the MetaMUI blockchain could extend to another type of token that is growing in popularity: the Non-Fungible Token, or NFT. At present, owners of NFTs lose the asset if their private key is lost or stolen. MetaMUI removes that risk.

MetaMUI also mitigates the risk of fraud in NFT issuance by linking SSIDs  to the ownership of the asset that is tokenised, in the same way that it links issuers of digital money or security tokens to ownership of underlying assets. This is a substantial benefit, given the high levels and increasing incidence of fraud in the NFT market.

MetaMUI makes the Metaverse possible

Yet the most exciting application of the identity-based approach of MetaMUI is even more futuristic. In the Metaverse, people enter a digital rendition of the physical world in the form of an avatar. Since they can buy and sell goods and services in the Metaverse, identity-based digital currency tokens and payment methods of the kind MetaMUI supports will be valuable.

But the Metaverse also sets MetaMUI an interesting challenge. The identity of the avatar which inhabits the virtual world must be linked to the identity of the person (or organisation) that inhabits the physical world, or there is a risk of identity theft and impersonation taking place in the Metaverse. The MetaMUI methodology of binding assets to SSIDs meets this challenge.

The challenge is a significant one. The Metaverse connects the real world and the digital world. Ultimately, this means that, if a consumer owns a house in the real world, his or her avatar needs to own the same house in the Metaverse too. Likewise, if a refrigerator in the digital world orders food from a grocery store, the groceries must be delivered in the real world.

It is at this juncture between the digital world and the real world that MetaMUI – as the name of the technology implies – will come into its own. By tying assets and transactions to identities, MetaMUI provides a bridge between the digital world and the real world. MetaMUI makes it possible to pay and get paid and to save and invest, seamlessly, between two worlds: the digital and the real.