German Central Bank: Blockchain Slow & Expensive
According to statements made in Frankfurt on May 29, Bundesbank President Jens Weidmann claimed that a trial project to integrate blockchain failed miserably.
As opposed to improving the bank’s operations, blockchain was slower and more costly, leading the president to conclude the technology failed to bring a “breakthrough” to the banking industry.
The trial project was a joint effort between the Bundesbank and Deutsche Boerse launched in 2016, which concluded at the end of last year. While the prototype managed to fulfill all “basic regulatory features” for financial transactions, its implementation proved expensive and slow relative to the current standard.
“The blockchain solutions did not fare better in every way: the process took a bit longer and resulted in relatively high computational costs. Similar experiences have been made elsewhere in the financial sector. Despite numerous tests of blockchain-based prototypes, a real breakthrough in application is missing so far.”
Banks Caught in the Middle of the Crypto Revolution
While investors may be bullish on cryptocurrency, particularly in light of the recent price gains for bitcoin, others seem set on barring the technology from industry. Crypto critics say that distributed ledgers, including blockchains, constitute the primary innovation underlying cryptocurrency – a concept that has been maligned by the financial cognoscenti.
Weidmann, who operates the German equivalent of the US Federal Reserve, is unleashing more of the doubt surrounding the cryptocurrency “revolution” that has come to characterize European economic policy.
In March, Pauline Kalfon, a cryptocurrency and blockchain executive for PwC France, warned that the French central bank was unlikely to use digital currencies anytime soon. Kalfon said such a decision would have to be initiated by the European Central Bank, a prospect that seems even less likely following the recent comments by the Bundesbank president.
Despite Weidmann’s negative stance towards blockchain, a growing number of global central banks are adopting distributed ledger technology – or at least praising its promise.
Speaking on the value of blockchain, European Central Bank Executive Yves Mersch cautioned against policies that would stifle innovation. Instead, he views the ECB as an evaluator of new developments rather than an instigator:
“Some of the technology is worth exploring and could also be of interest to central banks. That said, our role is not to drive technological adoption by the industry and the general public, but to ensure that changing preferences can be satisfied in a secure way.”
While the German blockchain project may have failed to improve upon existing operations, advocates for distributed ledgers believe the technology will ultimately prove itself over time.