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A UK government taskforce comprising the Treasury, the Financial Conduct Authority and the Bank of England has concluded that all three organisations should continue to support the development of distributed ledger technologies (DLTs).
In March 2018, the government set up the Cryptoassets Taskforce to assess the potential benefits and risks of DLTs and the crypto assets they underpin.
It has now reported its findings and said: “While DLT is at an early stage of development, it has the potential to deliver significant benefits in financial services and other sectors in the future, and all three authorities will continue to support its development.”
DLT is a digital system for recording the transaction of assets, the details of which are recorded in multiple places at the same time and input by different participants. Unlike traditional databases, distributed ledgers have no central data store or administration functionality.
But the report said there are still question marks over the technology’s application. “There is limited evidence of the current generation of crypto assets delivering benefits, but this is a rapidly developing market and benefits may arise in the future,” it said.
In the report, the government said its priority is to mitigate the risks to consumers and market integrity, and prevent the use of crypto assets for illicit activity. “The authorities will also guard against threats to financial stability that could emerge in the future, and encourage responsible development of legitimate DLT and crypto asset-related activity in the UK,” it said.
The report also announced the government’s intention to apply anti-money-laundering regulation to crypto asset exchanges in the UK, as well as ensuring that the Bank of England’s Real Time Gross Settlement (RTGS) service will be compatible with DLT-based payment systems.
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Compatibility with RTGS means banks will be able to settle cryto-based payments between each other. In 2016, the Bank of England said it would replace its current RTGS system by 2020 to ensure it could cope with the changing payments ecosystem. At the time, it said the RTGS must also be capable of interfacing with a range of new technologies, including distributed ledgers.
Governments across the world are investigating DLTs. A recent investigation into the use of blockchain, the most widely known DLT, carried out by the Australian government’s Digital Transformation Agency (DTA) looked at potential uses for the technology in government services.
DTA chief digital officer Peter Alexander said: “Our position today, and this is an early write-up, is that blockchain is an interesting technology that would be well worth being observed, but without standardisation and a lot more work, for every use of blockchain that you would consider today, there is a better technology.”
It is difficult for organisations to imagine how blockchain will be used, despite lofty expectations driven by industry analysts. Gartner has predicted that the business value-add of blockchain will grow to about $176bn by 2025 and exceed $3.1tn by 2030.
Blockchain and other DLTs, after huge hype, now face a “chasm to cross” if early pilots are to be applied to real-life business challenges, according to Dean Demellweek, digital innovation strategist at BNP Paribas, who spoke at the recent Blockchain Live event in London.