Tuesday, January 31, 2023

Korean Central Bank: Blockchain Would Cut Costs But Needs More Security

Korean Central Bank: Blockchain Would Cut Costs But Needs More Security

Korea’s central bank has published research from a six-month study on distributed ledger technology (DLT) in the financial sector. The study simulated industry scenarios using various existing blockchain and DLT-based networks.

Also read: India Holds Blockchain Conference, Really Wants Bitcoin

The Bank of Korea (BoK) worked with the local IT industry including bitcoin/blockchain company Coinplug, as well as academics and financial experts.

DLT would reduce costs across the board, it found. This includes development and procurement, as well as management and labor. Based on previous research by Goldman Sachs, BoK estimated savings of up to 16% or 107.7 billion won ($89 million USD) on 2015’s costs.

Korea’s securities industry could save a further 10 billion won ($8.3m). However it noted that true savings can only be calculated by looking specifically at financial services available to consumers. Estimates at this stage are admittedly broad.

Korea central bank blockchain test

Keep Innovating but Manage Risks

The report (Korean) stated regulatory measures surrounding new digital currencies (public or state-sanctioned) should combat money laundering without stifling innovation or being too rigid.

Real-time settlement would reduce counterparty risk, though new technology could also introduce new security and legal risks.

It concluded that implementing DLT and/or new digital currencies should only happen once the technology is verified stable and secure, saying:

“In order to utilize distributed ledger technology in financial services, it is necessary to resolve technical issues such as securing trade secrets, controlling authority, maintaining trust and security, and securing scalability.”

Rather than trialling a purpose-built prototype as others have done, the central bank simulated tests with a number of existing networks. These included the public Ethereum and Ripple networks alongside R3, Hyperledger, Japan’s SBI Fintech Consortium and ChinaLedger.

Central Bank Joins Others Examining Blockchain

Several central banks and banking industry consortiums around the world have now run blockchain or distributed-ledger technology trials. Central banks in Japan, Germany, France, Singapore and Australia have all announced separate tests in the past few months.

Meanwhile, Japan’s Blockchain Study Group (BSG) published results of its actual blockchain prototype test in November. Private institutions like Goldman Sachs have also reported on blockchain/DLT trials.

The results show almost universally that the technology will produce cost and security benefits if implemented on a large scale.

DLT in some form seems destined to replace the four decades-old SWIFT network for settlements.

Questions Remain for Bitcoin Enthusiasts

For bitcoin and cryptocurrency enthusiasts, some questions remain. Are these technologies still similar, or even relevant to the original’s progress? Even if different, do they broaden acceptance and normalize such systems, making them more palatable to newcomer users and potential developers? Or will the promise of corporate/government development funds lure programming talent away from “outsider” technology, as they do to the open source community?

More simply, does proprietary financial DLT rival open blockchains, or does it complement them? Or is it, as some claim, irrelevant anyway?

Answering those questions is mainly a question of waiting, rather than attempting to steer the situation. If banks can optimize and cut costs with DLT, they will. Open blockchains and cryptocurrencies will continue in parallel.

What do you think? Do blockchain and distributed ledger technologies have a promising future in the financial sector? Let’s hear your thoughts.

Images via Bank of Korea, Pixabay

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