Wednesday, 19 February 2020

Dutch central bank rejects blockchain

The Dutch central bank, DNB, has concluded that for the time being blockchain technology cannot meet the high demands of a financial market infrastructure.

This was the finding from its project Dukaton experiments over the last three years. “The biggest shortcomings are inadequate capacity, inefficiency due to high energy consumption and lack of complete certainty about having paid a payment,” read a statement. “Nonetheless, it appears that the resilience of a financial market infrastructure against external attacks could be increased by the use of blockchain technology, but this is at the expense of capacity and efficiency.”

DNB has developed and evaluated four prototypes with distributed ledger technology (DLT) to both build up knowledge and test to what extent these technologies are useful for improvements in payment and securities traffic.

A variety of prototypes showed that the blockchain cannot currently meet the demands of financial market infrastructures - safety, reliability, efficiency, payment finality (legal security), authorisation, resilience, availability, capacity, scalability, costs and sustainability - as defined by DNB.

These requirements are high because financial markets play a central role in payment and securities transactions in order to carry out the settlement of transactions. An example being Target2, the European Union’s interbank payment system, which can handle large volumes and provide the legal certainty of having paid.

“The blockchain solutions tested show that they are not sufficiently efficient, with regard to costs and energy consumption, and they cannot handle the large numbers of transactions,” stated DNB. “Moreover, with some used consensus algorithms the 100 per cent certainty is never achieved that a transaction cannot be reversed, while central banks do offer that with Target2.”

However, DNB did note that it finds the technology behind Bitcoin “interesting and promising”, suggesting that new algorithms may meet all the requirements for implementation in the future.

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