The Bank of Japan’s director has said that it’s important to constantly engage in taking measures against threats made to the blockchain or else it could impact the technology’s credibility and hinder its development.
Speaking at the third meeting of the FinTech Forum, Shigehiro Kuwabara, executive director of the Bank of Japan, presented a speech entitled ‘Distributed Ledger Technology and Designing “Trust”’ [PDF], which presented the banks view on blockchain and the issues of adopting it in the financial industry.
According to Kuwabara, establishing trust is an important facet in the financial industry compared to other fields. It is because of this that to make full use of the blockchain within the financial sector and how to design it as a trustworthy mechanism is going to be a challenge.
He proceeds by explaining three issues in designing a framework for blockchain to be trusted.
The first is ensuring ‘resiliency in emergency responses.’ He cites the DAO hack, which occurred last year, ‘in which an enormous amount of digital currency was drawn from a digital currency-based investment fund by hackers exploiting its system’s vulnerability.’
He adds that to recover the money, the operator proceeded to rollback the payment records, which wouldn’t normally occur.
And yet, as the cyberspace is exposed to threats such as hacking it’s necessary for the blockchain system to be resilient against potential threats that, as Kuwabara states, could ‘hinder the development of FinTech,’ as the credibility of the technology is put into question.
The second point is understanding the advantages and disadvantages of the blockchain.
There is no doubt that the technology is innovative and has exceeded expectations in its relatively short lifespan. However, Kuwabara believes that based on the level of the technology at its current stage, it has not yet to reach its full potential of replacing the current centralized system.
The DLT system, on one side, has strength in high fault resistance, but on the other side, there is also the challenge that it needs time to build consensus.
Thirdly, Kuwabara states that if the financial industry is to work with the blockchain it must have a deep understanding of the technology first.
At present, the core elements of the blockchain are developed by IT vendors and FinTech firms, outside of financial institution resources. But if the finance sector is to advance its services with the blockchain it needs to understand the technology.
Bank of Japan Initiatives
The Bank of Japan is committed to ensuring its economy and advancement with the blockchain.
Today, it was announced that the Japan’s central bank will ‘seriously consider’ digital currency despite saying at one stage that bitcoin doesn’t pose a threat to fiat money.
However, the central bank is continuing to watch the developments of blockchain knowing that in the future it may have to apply FinTechs to its operations.
Featured image from Shutterstock.
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