Blockchain is highly attractive, but currently hardly useful – Bank of England

Blockchain is highly attractive, but currently hardly useful – Bank of England

- in All News, Cryptocurrencies, Regulation
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The distributed ledgers – the technology also known as blockchain – is potentially highly attractive from a financial stability perspective, but is not mature enough to provide the exceptionally high levels of robustness required for Real-Time Gross Settlement (RTGS) service, concluded the Bank of England (BoE) in a recent consultation paper on the future of the service.

“Earlier this year, as RTGS approached its 20th birthday, the Bank announced its intention to draw up a blueprint for a new generation of RTGS, capable of supporting the future demands placed on it by a rapidly changing environment”, the BoE said.

The main purpose of the document is to outline the requirements for the next generation of the RTGS service and the possible solutions and to seek feedback from the market.

The main requirements for the new RTGS, as outlined by the c-bank, are for it to be responsive to the changing structure of the financial system, recognize the need for simpler and more resilient payment systems, have connectivity to the wide array of new technologies used in the private sector, including distributed ledgers, remain resilient to threats to continuity of service and have the capacity to support the evolution of regulatory and monetary policy tools.

Another significant requirement is for the system to have interoperability and the ability to operate on (or near) a 24×7 basis. BoE also outlines the need for a “service management” layer to ensure effective monitoring management, measurement and control and maintaining service levels and transaction throughput over time.

Having outlined the main requirements, the BoE explores the possible application of the blockchain technology and notes that it is a potentially attractive platform for banking applications over the medium term. It could be used as a possible platform for core RTGS, as a platform for externally managed securities settlement of forex services that require access to central bank money or as a platform for a possible future digital currency that might need to interoperate with RTGS.

“Three key potential benefits of distributed ledgers are trust, resilience and shared state,” the BoE notes. “The trust arises from the consensus required to update the ledger, the resilience from the geographical and technical diversity of the network, and the shared state from being able to prove that a node is up-to-date.” The main potential benefit when applied to core settlement in RTGS, according to the c-bank, is resilience.

On the other hand, however, BoE, notes, in its current state the distributed ledger technology is not sufficiently mature to provide the exceptionally high levels of robustness required for RTGS settlement. Furthermore, the system needs further enhancement of its privacy and security features.

Nevertheless, the BoE points out it recognizes that the new technologies like blockchain have the potential to reshape the future payment landscape and will continue its active research on the scalability, security, privacy, interoperability and sustainability of distributed ledger platforms and solutions. The process will be carried out both in cooperation with other central banks, academia and BoE’s own FinTech Accelerator.

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