Distributed ledger technology like blockchain is not mature enough to power the world’s biggest payment systems, though it has the potential to improve system resilience, the European Central Bank and the Bank of Japan said.
The conclusions drawn are similar to those of the U.S. Federal Reserve and the Bank of Canada in earlier assessments.
Blockchain, which first emerged as the system powering the cryptocurrency bitcoin, is a shared record of information that is maintained by a network of computers without the need for a trusted third party.
The euro zone and Japanese central banks argued that the technology has significant potential, “giving reasons to be optimistic”, but said issues including latency remained and that further development and testing were needed.
“Given the relative immaturity of the technology, distributed ledger technology is not a solution for large-scale applications like BOJ-NET and TARGET2 at this stage of development,” the ECB and BOJ said in a joint statement, referring to their payment systems.
“This joint effort has produced a thorough set of results that provide reasons to be optimistic with respect to the capabilities of DLT within payment systems,” they added.
Information on a blockchain can be viewed by all parties connected to the network but can only be amended if each participant agrees to the changes.
This creates a shared golden source of data that can reduce the need for an intermediaries such as banks, improving the potential for direct, real-time financial transactions between firms or individuals.
Banks and other large financial institutions have been ramping up efforts to develop blockchain-based technology to run some of their most burdensome back-office processes, such as the clearing and settlement of securities.
Source: Reuters (Reporting by Balazs Koranyi; Editing by Catherine Evans)