CU Ledger Initiative: A Way For Credit Unions to Get Involved With Blockchain

CU Ledger Initiative: A Way For Credit Unions to Get Involved With Blockchain
Posted: Sep 8, 2016
Categories: Bitcoin/Blockchain
Comments: 2
Author: Glen Sarvady

TPR Welcomes Payments Industry Veteran Glen Sarvady as a Guest Contributor!

In an earlier two-part article, CSCU’s Tom Davis did an impressive job of both demystifying the fundamentals of blockchain technology and explaining why it is a significant opportunity that credit unions must track closely. I encourage you to revisit Tom’s article for the fundamentals, but let me reinforce a few of his key points:


Bitcoin does not equal blockchain.  The virtual currency bitcoin is merely one application of its underlying blockchain (distributed ledger) technology. These virtual currencies- Ethereum is another that has gotten a fair bit of press, not entirely for the right reasons- may eventually settle into a viable business model. The potential for its underlying blockchain technology, however, is both clearer and virtually boundless.

Blockchain networks can be private (“permissioned”) or public. Much of bitcoin’s Wild West image derives from its “anyone can play” philosophy and promise of anonymity. This is not a requirement of the technology, however. Commercial applications of blockchain will almost certainly involve permissioned networks, in which all participants are known and vetted.

Big banks see big potential in blockchain. Announced investments in blockchain technology already extend into the tens of billions of dollars, and the patent land grab by the likes of Bank of America has already begun. Big banks’ budgets afford them the luxury of experimentation, but when the numbers involved get this big we’ve clearly moved beyond mere speculation.

Another sign of banks’ focus occurred in late August when a group of major European players (including UBS and Deutsche Bank) announced plans for their own blockchain-based “utility settlement coin” to clear their back-office interbank transactions. As noted above, this will be an example of a permissioned network, with a goal of easier reconciliation and lower transaction costs. Similarly, many of the proposals submitted to the Federal Reserve’s Payments Improvement initiative leverage the blockchain model to revamp the US payments infrastructure.

What Credit Unions Can Be Doing Today

Against this backdrop, the question becomes what credit unions can do to avoid being left in the starting blocks when blockchain makes its way to commercial and consumer-facing applications. First mover advantage may prove to be critical on this front- an entity that is able to establish the market standard for a given service (identity, for instance) may be in position to erect a “toll gate” model, extracting a small fee for each of a very large number of transactions. Clearly, credit unions should be on the collecting side of this transaction rather than the paying end.

A CUSO is the natural construct for credit unions to engage in blockchain R&D. Not only is it too large an undertaking for a single CU to go it alone, but blockchain’s very nature favors collaboration across a network in order to achieve proof of concept.     

Toward that end, a group of credit unions and service providers have launched the CULedger initiative. Originally convened by the Mountain West Credit Union Association and Best Innovation Group (BIG), its stated goal is to create a private, permissioned distributed ledger network to be used by credit unions for a range of functions potentially including smart contracts, identity management, money movement, etc.

To date dozens of credit unions have signed on to the CULedger effort, which also enjoys the active support of CUNA and several credit union leagues and is being managed by BIG. Its initial proof of concept will involve Sovrin’s identity platform- identity management has emerged as a pressing consumer need across many venues as well as a natural fit for blockchain technology, one in which CUs can stake a leadership position.

In the pilot phase, participating credit unions will create nodes on CULedger running the Plenum open-source protocol to test the viability of such a network. The focus will be on establishing and measuring connectivity, maintenance, throughput and encryption. These nodes should be completely stand-alone; No access to resources other than the Internet is necessary, and nodes should not be connected to the credit union’s core/host system or production environment.

For a small seed investment and a nominal amount of IT bandwidth, participating credit unions stand to gain valuable hands-on education in blockchain’s viability in a credit union setting. By collaborating through a syndicated R&D effort, these CUs have recognized the opportunity to more effectively leverage their investment dollars than with a standalone project.

More information on CULedger is available at  Even if you choose not to participate directly, however, it behooves your credit union to stay abreast of the latest developments in blockchain applications. Its impact is only beginning to be felt in the financial marketplace.

Editor's Note: CSCU recently announced its commitment to the initiative by way of a financial contribution and with the naming of CSCU president Bob Hackney to the CULedger steering committee. 

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Glen Sarvady

Glen SarvadyGlen Sarvady

Glen Sarvady is managing principal at 154 Advisors and senior payments expert with Best Innovation Group, a CUNA consulting partner. Follow him on Twitter via @154Advisors.

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2 comments on article "CU Ledger Initiative: A Way For Credit Unions to Get Involved With Blockchain"

Michal Turna, 9/14/2016 7:34 AM

Nice post. Are there any use cases how blockchain can create the win-win concept between bank and for instance its corporate clients?

Glen Sarvady, 9/14/2016 2:56 PM

Good question- two of the main FI use cases for blockchain align quite well with corporate client needs. Smart contracts certainly apply, as would any "chain of custody" applications. And the identity component is also valuable for corporates- consider workflow for payment approvals. Blockchain can add confidence that no one is hacking into the system to impersonate someone with approval authority.

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