Applying private-type distributed ledger technology (DLT) to securities settlement may be the most feasible way of utilising blockchain technology, according to the Bank of Japan (BoJ).
A report by the BoJ concluded that utilising a ‘private type’ DLT, one that only has a limited number of participating members, would be the most feasible application as ‘public ledgers’ would be too costly.
It also concludes that applying private-type DLTs would reduce the current burden of post-trade procedures in securities transactions.
When applying the technology the forum stressed the need to establish privacy frameworks suggesting problems would be caused if a participant in a private-type blockchain gained access to the record of transactions of other participants.
The forum also discussed the wider benefits of implementing blockchain technology and concluded that implementing blockchain would be an upgrade on current settlement transactions in terms of cost reduction.
The panel’s suggestions contradict those made by Barclays’ former blockchain R&D vice president Simon Taylor.
Speaking at London’s FinTech week in July, Taylor suggested that settlement transactions would be difficult to solve using blockchain technology and that the industry should look to other applications.
Blockchain technology has been hailed by custodians as being the future of the industry with potential to streamline processes such as settlement, clearing and corporate actions.
Numerous industry commentators have since expressed doubts over the technology with US regulators warning that the technology could pose “risk and uncertainties” to the financial stability of capital markets.
‘Private’ blockchain technology key for settlements
Using non-public ledger-based technology would calm privacy fears, according to the bank of Japan.