The European central bank (ECB) recently led a study to analyse the benefits and risks of blockchainAn unchangeable digital record where transactions are processed and verified by a network of independent computers rather than by a single referee. This decentralised structure has been described as an open distributed ledger. It supposedly enhances security as there is no single entity to be hacked. It also protects personal identity and guarantees that governments can’t block transactions or otherwise manipulate the payments space. The blockchain is the underlying technology supporting most ... More technology and consider its possible integration in its market infrastructure. The final report named Distributed Ledger Technology (DLT) – challenges and opportunities for financial market infrastructures was published earlier this month alongside the annual report of the bank.
In its report, the ECB concluded that the distributed ledger technology does not meet the bank’s requirements in terms of safety and efficiency. The bank is not firmly opposed to blockchain, but it considers that the technology is not mature enough to be integrated into its infrastructure as it is constantly evolving. Nevertheless, experts recognise that DLT contains several advantages and could notably help reduce back office costs, shorten settlementThe discharge of an obligation in accordance with the terms of the underlying contract. In e-transfers the settlement may take days, whereas cash settlements are instantaneous and irreversible. More cycles and enable automatic updates of records.
The ECB will continue to monitor DLT’s developments and could use the technology in the administration of Target2Secrities – a pan-European platform for securities settlement of central bank moneyA liability of a central bank, including banknotes in circulation and banks’ deposits with the central bank. More. Furthermore, the ECB launched a joint research project with the Bank of Japan to study the impact of new innovations of the global financial market and explore other uses for blockchain technology.
Last year, Yves Mersch, former Governor of the central bank of Luxembourg and ECB executive board member already warned against the use of blockchain by pointing out issues regarding security, governance and privacy.