By Jeff Bater
Dec. 5 — Cost-benefit considerations are among the challenges facing the financial industry as it explores distributed ledger technology (DLT), also known as blockchain, a Federal Reserve paper said.
Researchers said the industry is at an early stage of development regarding the fintech innovation of DLT. As industry experiments with the innovation, a number of business, technical and financial design challenges must be addressed before DLT can become a practical solution for some aspects of payments, clearing and settlement.
“A key challenge is identifying appropriate use cases where the potential reduction in costs of operational and financial inefficiencies would justify the cost of the investment and operational changes needed to implement DLT,” the paper said.
If broad adoption of DLT is to take place in payments, clearing and settlement, the industry will need “a critical mass of participants” for any application of the technology to be successful. “Network effects are derived from the fact that each additional user of a network increases the benefit of the network for existing users,” the Fed researchers wrote. “This effect can often lead to a problem for early adoption because the net benefits for early adopters may be negative without sufficient participation, leading to a possible lack of adoption.”
DLT, in the context of payments, has the potential to provide new ways to transfer and record the ownership of digital assets and securely store information, the paper said.
“Potential use cases in payments, clearing and settlement include cross-border payments and the post-trade clearing and settlement of securities,” the researchers wrote. “These use cases could address operational and financial frictions around existing services.”
In an Oct. 7 speech in Washington, Fed Governor Lael Brainard said that it would be premature to consider a relaxed-rules “sandbox” for blockchain because the field is in its infancy.
To contact the reporter on this story: Jeff Bater in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)