Designing a novel protocol for controlling bank account funds under consensus with multi-signature authentication

Abstract

Fraudulent management in pension funds is a serious issue which jeopardizes the reliability of said entities. In Brazil, one of the most notorious cases of pension funds fraud is of Postalis, which resulted in a loss of R$ 7 billion that has been paid not only by working contributors but also by those who have already gone into retirement. A technology that has been recently gaining traction among financial institutions is Open Banking, which enables users and third-party services to share data and manage accounts through applications programming interfaces other than those provided by banks themselves. Another very promising computational solution becoming more and more common in financial applications is Blockchain. Some of its core characteristics are immutability, consensus, security, elimination of centralizing agents, etc., which shows high potential for numerous applications in multiple areas. As a first step towards tackling such fraudulent management, our contribution is to show that a hypothetical pension fund in the form of a banking account could be managed by a group of actors enforcing consensus, transparency, and strict rules. To this end, we develop and present a novel distributed protocol combining Corda-based smart contracts, open banking APIs, and threshold signatures. We discuss that our proposal is feasible, although the limitations of the currently utilized open banking API make it still a challenge to attain a fully decentralized protocol that controls a banking account