The central banks of Japan and European Union have concluded that Distributed ledger technology is not mature enough to replace settlement systems.
Bank of Japan (BoJ) and the European Central Bank (ECB) launched a project, Project Stella, last year to assess if DLT can handle large-scale applications like real-time gross settlement (RTGS) systems. The Bank of England also carried out its own pilot with Ripple and came to the same conclusion.
“Findings in relation to efficiency show that, with regard to the specific aspects of RTGS services tested to date, a DLT-based solution could meet the performance needs of current large value payment systems. Given the nature of DLT arrangements, in which the process of validating transactions and reaching consensus is more complex than in a centralised system, this is encouraging evidence.”
Among the findings, the report notes that high number of nodes and the distance between validating nodes leads to an overall increase in the time it takes to settle transactions across the network. Another issue is that the platform used in the tests includes a certificate of authority, and this could become a single point of failure. A statement from the banks highlights the “immaturity” of blockchain for this purpose, and also that if Bank of Japan or the ECB will one day move to blockchain remains to be seen.
The central banks added:
“Given the relative immaturity of the technology, DLT is not a solution for large-scale applications like BOJ-NET and TARGET2 at this stage of development.”