- Jul. 17, 2019
- Jul. 12, 2019
- Jul. 10, 2019
Payment and Settlement Systems Department
Bank of Japan
Utilization of DLT (Distributed Ledger Technology) in Financial Services
February 28, 2017
The Bank of Japan held the 3rd Meeting of the FinTech Forum on February 28, 2017. Its theme was "Utilization of DLT (Distributed Ledger Technology) in Financial Services".
At the presentation session, financial institutions, IT vendors, DLT consortiums, and start-ups reported their initiatives, such as proof of concept (PoC) experiments aiming at applying DLT to businesses and practices. There are various DLT platforms, and these platforms differ in terms of (a) its membership - permission-less ("Public type") or permissioned ("Private Type") -, (b) the way of transaction validation and consensus algorithm such as "PoW (Proof of Work)" and "PBFT (Practical Byzantine Fault Tolerance)", (c) data structure, and (d) the way of information sharing. Among these platforms, each player is trying to use the most suitable one to its needs, taking into account the purposes of PoC and the characteristics of planned business uses. Presenters also argued that the differences among these DLT platforms did not necessarily mean technological superiority or inferiority of them.
Such diversity in available DLT platforms could afford application of DLT to various needs. At the same time, presenters argue that how to achieve "economies of scale", which would be critical for DLT to be continuously and widely used in businesses, would be a challenge. In this regards, some presenters expressed the view that it would be important to establish and maintain "interoperability" between different DLT platforms, in order to achieve the benefit of "economies of scale" while enabling flexible use of DLT.
At the following panel discussion, the panelists talked about wide-ranging topics including (a) the way of applying DLT to financial services, (b) possible cost reduction through the use of DLT, and (c) desirable standardization of technological platforms in future.
Regarding the types of financial services to which DLT can be applied, the panelists argued that DLT could be applied to a variety of financial services and practices. As particular services and practices where the application of DLT would bear substantial benefits, they raised business areas where (a) substantial inefficiency remained in current operations, (b) the application of DLT would facilitate the sharing of common rules regarding operational processes used by various entities, and (c) the application of DLT would lead to "economies of scope" through combining several businesses such as financial services, commerce and distribution.
In terms of possible cost reduction through the use of DLT, the panelists warned that we could not expect substantial cost reduction solely by the application of DLT. They argued that it would be necessary to innovate the way of operational procedures and IT systems line with DLT, in order to maximize the cost reduction benefits of DLT.
Regarding desirable standardization of technological platforms in future, the panelists pointed out that establishing links between multiple types of DLT-based ledgers would be needed in future. They added that it would be needed to consider to what extent we should standardize the technological basis of various DLT-based ledgers.
Also, some panelists pointed that "trusted third-party entities", which have so far been managed "centralized"-type infrastructure, could play a key role for maintaining good governance in "distributed"-type infrastructure utilizing DLT. They added that good governance structure would be strongly needed also in distributed-type infrastructure, for example, in resolving possible conflicts among stakeholders in tail events.
Distributed Ledger Technology and Designing "Trust"
Shigehiro Kuwabara, Executive Director of the Bank of Japan
Information Security Requirements for Distributed Ledger Technology
Masashi Une, Director, Center for Information Technology Studies, Institute for Monetary and Economic Studies, Bank of Japan
PoC Experiment for a Lending Market on Bitcoin Blockchain
Yutaka Nakasone, Assistant Manager, Market Economist, Market Planning Dept, Market Unit, The Tokyo Tanshi Co., LTD.
Go Takahashi, CTO, HAW International Inc.
Exploring the Possibilities and Challenges of Applying DLT to Securities Post-trade
Tomoko Kawano, Senior Vice President, Custody Sales & Marketing Team, Settlement & Clearing Services Department, Mizuho Bank, Ltd.
Naruhito Takiguchi, Director, Middleware Development Dept. II, Software Unit, Fujitsu Limited/Fujitsu Hokuriku Systems Limited
BoJ's Initial Study on DLT
Yuji Kawada, Director, Payment and Settlement Systems Department, Bank of Japan
Munetoshi Yamada, Project Manager, APAC, R3
Technical Details and Characteristics of Hyperledger Iroha,
Makoto Takemiya, Co-CEO, Soramitsu, Co., Ltd.
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