Thiele: Taking a positive view on blockchain technology

Speaking at the Frankfurt Financial Summit, Bundesbank Executive Board member Carl-Ludwig Thiele argued that blockchain technology should generally be seen in a positive light. This technology forms the basis of virtual currencies such as bitcoin. It is a public transaction ledger where data on all participants' transactions are saved in a decentralised manner.

Blockchain technology offers advantages

According to Thiele, many banks are already actively exploring the potential of this new technology. "80% of all banks are expected to have at least started a blockchain project by 2017," explained the Bundesbank Executive Board member in the light of institutions' growing interest in the technology thanks to its benefits. "Everyone involved works on a uniform data pool in work-sharing processes", said Thiele. This prevents reporting errors and subsequent data reconciliation rounds. Thiele also said that it may be possible to settle transactions between various business areas relatively quickly using blockchain technology. "Because many or all of the participants store the data on every transaction, there is also greater hedging against the loss of data and against subsequent changes," said Thiele as he listed further benefits.

Experts regard these properties as advantageous, for example, in trade finance or the settlement of securities, which involve the conclusion and fulfilment of a stock exchange transaction between two or more parties. Thiele explained that a blockchain application would provide all market players with an instant, uniform data storage solution. In his opinion, this could reduce inefficiencies that occur during the settlement of securities owing to the lack of interfaces between settlement service providers.

Many drawbacks still remain

Nevertheless, there are still a number of disadvantages that hinder the use of blockchain technology for payments in the financial industry. To eliminate these, its basic version, which so far has only been used to transfer bitcoins, will have to be enhanced. For example, the current blockchain version still has the following problems. In practice, the majority of participants decide whether a transaction is confirmed or cancelled. This is not an acceptable method for payments in the financial industry because the customer expects a transfer to another to be legally valid, ie final, upon settlement and not subject to cancellation. Nor is it acceptable for a third party to be aware of a transfer or influence its validity when it comes to financial sector payments.

"We need binding legal certainty in the real financial world," said Thiele in his speech, explaining that if two parties have concluded a deal, others should not be able to determine its validity. Thiele also remarked that, as things stand, relatively few transactions can be carried out per minute with the basic version. Users would also initially face high investment costs to program the system, increase computer capacity and connect to other systems, for example. Thiele also pointed out that current procedures are still not sufficiently user-friendly to be suitable for mass use.