The Federal Reserve, the central bank of the United States, has officially announced its plans to release a study on the blockchain technology for regulation and security purposes.
Since early 2015, the blockchain market has continuously grown at a rapid rate, due to the sheer volume of capital being injected by leading banks and financial institutions in the development and implementation of blockchain-based systems.
In April 2015, the Office of the Comptroller of the Currency called for innovative regulations on digital currencies and the utilization of blockchain, considering the increasing interests in the blockchain technology and the potential impact a strict regulatory framework could have on the implementation and deployment processes of financial technologies.
The Fed hopes to grasp a comprehensive understanding of the blockchain technology, including its security issues, which Fed governor Lael Brainard believes is the most important aspect of the blockchain technology and any other fintech services commercially available in the market.
While Brainard agrees that the blockchain technology’s ability to reduce friction in cross-border payments and costs for both international and local transactions is important to the financial sector, without proper security measures, it will struggle to deal with various vulnerabilities in the future.
A working and research group under the Fed is in the process of completing a detailed review of the blockchain technology, exploiting the benefits and disadvantages of the technology.
“What matters to us as policy makers and regulators is not only whether the migration to a new technological platform increases or reduces risks, but also whether risks are rendered more or less opaque, and how they are distributed among and between financial intermediaries and end users,” stated Brainard. “Adverse actors that can take over a participant’s access to the ledger remains a key security concern, as thefts of cryptographic keys in bitcoin continue to demonstrate.”
Although the involvement of central bank may interfere with the development and growth of the blockchain market, it is positive that the central bank of the United States is heavily concerned with security issues and vulnerabilities that may arise.
The release of Fed’s blockchain experiment and research will high likely overturn the idea of private blockchains or centralized ledger-based networks, that are prone to various security issues and vulnerabilities.
Sources: OCC, WSJ, Fed
Image Credit: LATimes