The Bank of England plans to include the blockchain technology in its interbank settlement service as part of their major revamp and enhancements of t
The Bank of England plans to include the blockchain technology in its interbank settlement service as part of their major revamp and enhancements of the system.
Of course, the bank’s suggestion is not about processing bitcoin payments in the U.K. banks. Their focus is towards updating its agening real-time gross settlement (RTGS) system so it can handle the expected increase in usage until it goes into service in 2020.
Actually, the bank suggests five key strategic drivers for the new RTGS system in a consultation document it has prepared. The paper is focused on safeguarding stability and innovations. One of the main keys it offers is the need of bringing in new technologies and distributed ledgers are of huge priority. In this regard the research leads us to blockchain as it has proven itself as one of the best public ledgers nowadays.
However, the banks attitude to the concept of distributed ledgers is still in early stages but they want to be ready for them when the time comes. Nevertheless, one thing is certain – a lot of things have to change in the existing RTGS system, built in 1996, so it will meet the current needs and keep it up to date.
One of the best advantages bitcoin servers offers is that they provide longer working hours. They run nonstop, to be specific, and the existing RTGS closes for 12 hours each night. The blockchain not only operates 24×7 but also approves transactions within minutes, which is significantly improved quality of service.
There is need for enhanced security too, since the system will support all payments.
The bank stated it will continue to explore the use of distributed ledgers in its own systems. It even started its own startup accelerator in search of new participants. The first winners are already known – among them there is a security assessment service, called BitSight; a PWC to explore the possibilities of smart contracts; a data anonymization tool, called Privitar and a blockchain platform developed by the bank. The startup program is about to select new participants through a second round of searching.
The document also exposes that technology is not mature enough to maintain the extremely high standards of stability and strength required for RTGS settlement. Extra caution should be paid towards privacy and system scalability as well.
Around £500 billion (US$660 billion) are exchanged between banks everyday through the current RTGS. This is an impressive amount of money, almost a third of the U.K.’s annual GDP. The system is of essential importance to financial life in Britain and the crisis of October 2014, when the system went offline for a couple of hours due to a technical problem, has proven that. So a blockchain based system could be the long sought answer for the bank.