Distributed ledger technology, or blockchain, has a “long way to go before it can be fully realised” according to a board member of the European Central Bank (ECB).
The ECB committee on payments and market infrastructures chairman, Benoit Coeure, said that blockchain could pose new risks to the financial system, including potential uncertainty about operational and security issues.
He also cited potential legal and operational obstacles due to blockchain.
At the centre of the technology is a system where ledgers are distributed across multiple “nodes” that can be updated from separate sites. The nature of this synchronised system is central to many of the benefits that can be derived from blockchain, but could also trigger additional risks.
“Having many nodes in an arrangement creates additional points of entry for malicious actors to compromise the confidentiality, integrity and availability of the ledger,” said Coeure in the report.
However, Coeure added that distributed technology could become a “game changer” for payment clearing and settlement activities if fintech companies and financial institutions can leverage the technology to meet requirements.
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