Bank of Korea Releases Overview Of Blockchain Tech
The Korean central bank recently released a joint research report titled, “Present Status and Key Issues of Distributed Ledger Technology, which “comprehensively reviewed and introduced the recent development of distributed ledger technology and the utilization on financial sector. Also, major policy issues, including digital currency and regulations of distributed ledger technology, have been reviewed.”
The report details the Bank of Korea’s plans for future utilization of distributed ledger technology (DLT). More specifically, it quantitatively estimates “… the cost-cutting effect of the application of the distributed ledger technology for the first time in Korea. It presented technical suggestion to implement the technology for major settlement services such as the Bank of Korea settlement network.” The report will serve as a reference manual for long-term strategy and research on DLT.
According to the Bank of Korea, adoption of DLT will lead to significant cost savings when applied to the financial services industry, in particular, reductions related to IT system and management.
“Based on previous overseas research (Goldman Sachs (2016) etc.), at the Securities sector (exchange and depository), the back office cost (IT cost, labor, etc.) will have a reduction effect of 107.7 billion won (16% of total cost) as of 2015.”
An additional 10 billion won is expected to be saved due to the effect DLT will have on security firm financial costs. However, the report admits that the total projection of cost-savings is difficult to calculate due to the segmentation that services such as banking offers.
The report provides detailed explanations of prospective structural changes to the financial sector and discusses the need for regulation. The Bank of Korea stresses the importance of regulation for digital currencies due to the susceptibility of criminal activity and identifies regulatory activities in the U.S., EU, and Japan as examples. The Bank is also considering additional security and legal risks that are expected to emerge due to the marriage of smart contracts and DLT.
The Bank recommends a comprehensive review of the economic impact of central bank digital currency issuance as it predicts that digital currencies will compete with commercial bank deposits. The Korean central bank also recommends the introduction of sound regulations that do not discourage interconnected cross-industry development.
The Bank of Korea’s research report shows that the push to embrace blockchain technology in fintech continues to gain momentum. The recent formation of a Korean consortium and the country’s promise to regulate Bitcoin in Q1 of 2017 further strengthens the claim. However, the recent activity in Korea shouldn’t come as a surprise as other countries around the world have begun to adopt blockchain fintech regulations and solutions as well. A worldwide adoption of blockchain systems by central banks should create a solid foundation to convince other governments to adopt Ethereum-based solutions to address issues in fintech and other industries.