October 25, 2018 10:48 PM
Germany’s central bank and the operator of its stock exchange – one of the largest securities trading centers in the world – have successfully performed a pilot of securities settlements using blockchain technology.
Deutsche Bundesbank and Deutsche Börse Group, long-time collaborators in the development of financial market infrastructure, partnered in March 2016 for a project called BLOCKBASTER. The project’s goal was to look at the usefulness of blockchain in improving back-office services for the bank and the stock exchange. As part of this goal, conceptual prototypes would be created to test blockchain-based elements of the transfer and settlement of securities and cash.
In a press release today, October 25, 2018, the pair announced they have successfully completed performance tests of two prototypes for blockchain-based settlements of securities transactions, payments, interest payments, and repayments when a bond matures. The release confirms:
“The tests showed that both prototypes are suitable for the productive operation of a realistic financial market infrastructure and can serve as a basis for further development.”
The partnership chose to test two “technology stacks” under assumed market conditions. These blockchain protocols were built on Hyperledger Fabric (version 1.0) and the Digital Asset (DA) platform.
The Deutsche Bundesbank and Deutsche Börse Group say that both platforms have had subsequent releases to those used in their prototypes “which may even improve the performance” in their securities settlements.
In the release, Burkhard Balz, member of the executive board of Deutsche Bundesbank, said that he sees the potential of using blockchain technology for “high-volume” applications and that “the approach of a permissioned architecture, which takes into account the requirements of the financial sector from the outset, has proven to be right.”
Berthold Kracke, CEO of Clearstream Banking Frankfurt and head of Clearstream Global Operations at Deutsche Börse Group, complimented the expertise of Digital Asset in tailoring the product to the needs of the securities industry. He declared: “The tests have shown that blockchain technology is a suitable basis for applications in the field of settlement and other financial infrastructures.”
Interestingly, the BLOCKBASTER final report records, “The project was purely for research purposes and was not intended to produce an operational system.”
However, the conclusion of the report and the comments in the press release indicate the banks may have been positively surprised by the pilot’s results and the advancement of both blockchain as a technology and its ongoing transfusion into many of todays industries. The report says:
“We have realized that the blockchain or DLT-based solutions offered to the financial industry have over the years tremendously improved in terms of scalability. Both technology stacks used in our project seem in principle to fulfil [sic] the performance requirements of our use-case and could therefore be considered as possible candidates for building productive systems.”
However, to judge whether a distributed ledger technology-based solution would be a “beneficial technology” and “superior in comparison” to a centralized system would require a full-scale, comprehensive cost-benefit analysis.
No plans have been revealed by either of the leading German financial institutions as to whether they will investigate blockchain further. Still, the results and commentary should be reassuring to the blockchain sector, given that Germany is the world’s fourth-largest economy by nominal GDP and a hub for securities trading.
In August 2018, Germany’s second-largest stock exchange operator, Boerse Stuttgart, announced a mobile-based cryptocurrency trading application as well as plans for an ICO platform and full trading and custody services for cryptocurrencies.
Melanie Kramer is a freelance FinTech, blockchain, and cryptocurrency writer based between France and Canada. Melanie has studied, and retains an avid interest in, global politics, business, and economics.
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Source: ETHNews