Bank of Japan exec warns FS firms against leaving DLT expertise to tech providers
02 March 2017 | 13145 views | 0
Distributed ledger technology has huge potential but has not yet reached the stage where it can fully replace current centralised systems, says a senior Bank of Japan official, who also warns FS firms against leaving the development and understanding of the tech to outside vendors.
In remarks at a fintech forum, BoJ executive director Shigehiro Kuwabara says: "There is absolutely no doubt that DLT is an unprecedented innovative technology, however, based on the level of its technology at this stage, it cannot be said to have yet reached the absolute superiority required to fully replace the current centralised system."
If DLT is to challenge the old systems, FIs need to ensure they have a deep understanding of it, warns Kuwabara, noting that currently most core elements of the tech are being developed by old-school IT vendors such as IBM and fintech startups.
The exec says that "without any deep understanding in the technology, it is difficult to constantly provide high-value-added services and respond properly and responsibly to any problems".
In his remarks, Kuwabara also highlights the importance of ensuring the resilience of DLT in emergencies, citing last year's attack on DAO, a virtual currency fund that relied on the ethereum blockchain. The hackers exploited a flaw in the DAO's smart contract to steal tens of millions of the dollars.
The operators "rewound" the payment records to recover the money, something that could never normally occur and which proved controversial.
Says Kuwabara "There are still different opinions about the propriety of this response, but in any case, we should aware that if such incidents occur frequently, it may spoil the credibility on the technology and the framework, and consequently hinder the development of fintech."
Despite these concerns, the BoJ thinks that DLT has a "wide range of possibilities" and is researching the technology, notably in a joint effort with the European Central Bank, although details of specific work have not been revealed.
Kuwabara's speech coincided with news that a consortium of 47 banks had successfully completed a pilot implementation of Ripple in Japan using a cloud-based payments platform.
The coalition, led by SBI Ripple Asia, enabled the real-time transfer of bank-to-bank funds in both a domestic and international setting. As a result, the consortium has confirmed that it will move into commercial phase.