Carl-Ludwig Thiele: Industry Dialogue on "Distributed ledger
technology - potential benefits and risks"
Introductory statement by Mr Carl-Ludwig Thiele, Member of the Executive Board of the
Deutsche Bundesbank, at the G20 conference &quot;Digitising finance, financial inclusion and
financial literacy&quot;, Wiesbaden, 26 January 2017.
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Mr von Weizsäcker,
Ladies and gentlemen
Whenever a technical topic attracts as much media attention as blockchain technology has, it
must mean it's something special, especially considering the topic itself is not an easy one.
It's safe to say that there is much anticipation surrounding distributed ledger technology - some
feelings of hope, some of fear. And the influence this technology is likely to have extends far
beyond the financial sector.
The Deutsche Bundesbank operates large financial market infrastructures and also develops
these further in line with technological advances. For this reason, we need to be aware of the
potential benefits and risks of this technology early on.
Together with Deutsche Börse, we have developed a preliminary prototype for blockchain-based
settlement.
This prototype has the following capabilities:
Settling payments based on blockchain technology,
Transferring securities,
Processing basic delivery-versus-payment transactions, where securities purchases are
settled and paid for simultaneously, and
Processing basic corporate actions, such as coupon payments on bonds and redemptions
of maturing securities.
The aim of the project is to learn, step by step:
How blockchain technology works,
How secure and reliable blockchain-based transactions are,
Which factors affect the costs of blockchain-based transactions,
How efficient and effective blockchain-based processes are, and
How existing processes may be improved using blockchain technology.
One of the key points here is increasing process efficiency. By using a shared data pool across
all entities concerned, it should be possible to standardise and simplify some of the overly
complicated transaction monitoring processes we have today. In addition, a shared data pool in
combination with a flexible access rights concept would, for example, also establish the
conditions in which the relevant regulatory reporting and internal audit requirements could be met
with reduced effort and designed more securely.
We opted for a concept based on a Hyperledger blockchain. The most important considerations
for us when designing the Hyperledger-based prototype were:
Having a closed - or "permissioned blockchain" - network, where only authorised users can
transact on our blockchain network.
Confidentiality and responsibility - we believe that even in the future, financial transactions
will continue to be governed by today's standards as far as confidentiality and acceptance of
responsibility for effected transactions go. That's why each individual transaction is
encrypted, along with the identities of the transacting parties.
Our conceptual study shows that blockchain technology can be adapted to meet the current
needs and requirements of the financial system. The prototype works. Having said that, its
further development for mass use is still presenting many challenges.
The conceptual study is far from being market-ready. We are currently only at the preliminary
stage with a test application, with which we are able to simulate large-volume
delivery-versuspayment securities transactions.
At this point, we are unable to say whether this application can be adapted for mass use or
whether this is even a viable option in terms of costs.
So, to summarise: our joint project has seen the development of an elementary, but functional,
blockchain-based application, which caters to the basic requirements of the financial sector.
With this as our starting point, we aim to develop a technically more sophisticated prototype,
capable of providing information on technical performance and thus allowing comparison with our
present settlement infrastructure.