Eurosystem, the monetary authority of the eurozone, has been exploring the possible use cases of distributed ledger technology (DLT) to conduct wholesale settlement in central bank money. It has now completed its first experiment using DLT, giving the monetary authority a glimpse into the potential merits of the tech.

Over the next six months, onboarded companies will conduct trials and experiments on three Eurosystem interoperability-type solutions proposed for central bank money settlement of wholesale financial transactions recorded on DLT platforms. Furthermore, these tests will continue to explore the viability and benefits of actual central bank money settlement of wholesale financial transactions using DLT technologies.

The European Central Bank (ECB) and the national central banks of the euro area are among the first central banks to delve into the viable use of the tech. Initially, 16 private companies will conduct trials involving actual settlement in central bank money. They will also experiment with mock settlement in test environments. The exploratory work will provide the Eurosystem with insights into how the TARGET Services and DLT platforms could interact in wholesale financial markets.

Looking to the future

Preparations for further trials and experiments are ongoing and will cover a variety of use cases. This includes DvP transactions in primary and secondary markets, securities lifecycle management, automated wholesale payments and payment-versus-payment transactions.

A set of key performance indicators will be used to assess the results of the trials and experiments. The participating companies will perform the assessment in cooperation with Eurosystem. In December 2023 the Eurosystem launched a call for expression of interest in exploratory work on the three interoperability solutions proposed by the Eurosystem and detailed these in the annexes to the notice.

Commenting on Eurosystem’s trials, Edvards Margevics, co-partner at fintech company CONCRYT, the payments and banking fintech: “As the Eurosystem embarks on these trials, we will hopefully witness a pivotal moment in the evolution of blockchain and cryptocurrencies.

“Eurosystem is involving private companies and central banks in live trials. As a result, it is demonstrating a commitment to exploring innovative solutions for enhanced efficiency and security in financial markets. These trials offer valuable insights into the potential benefits of DLT integration in wholesale financial transactions. They are also paving the way for future advancements in blockchain infrastructure.

“However, Eurosystem’s exploratory work does not necessarily constitute a commitment to provide any steady-state solution(s) in the future. Nor does it need to make any changes to its current infrastructure. The responsibility for making DLT a success is on industry players. Additionally, if the market wants to go in this direction, it is on the ECB to find out what the cost-benefit of any solution will be. Therefore, the entire crypto industry will be interested in the outcome of these trials.”

What does the successful trial mean for the fintech industry?

Neil Vernon, chief product and innovation officer at Gresham Technologies, a global fintech company specialising in mission-critical data and automation solutions for the finance industry, commented on the announcement saying: “Eurosystem’s successful trial indicates that the fintech sector is setting up for significant change in the next five to 10 years.

“Systems will improve, speed up and carry more ability than ever before. With T+1 settlement times entering the fray, and huge advancements in AI and automation shaping how we view technology, the fintech we know today could be unrecognisable sooner than we expect.”

“The Eurosystem’s successful experiment with new technologies for settling wholesale transactions in central bank money marks a significant step toward modernising financial infrastructures,” said Robert Brown, head of strategic development at MAS Markets, the flexible multi-asset liquidity firm. “By involving 16 private companies, the trial explored both actual and mock settlements.

“DLT offers potential benefits such as increased efficiency, reduced reliance on intermediaries, and enhanced compliance through transparent, immutable transaction records. These advancements could aid in monitoring cross-border payments and reducing fraud. However, DLT adoption may require central banks to adjust their infrastructures, enabling DLT platforms to interface with existing systems or offering central bank money in a DLT-compatible form.”

The potential of DLT

Jorge Lesmes, senior director and client partner, banking at NTT DATA UK&I, said: “Eurosystem’s successful trial underscores the potential of DLT to revolutionise wholesale transactions by enhancing efficiency, security, and transparency.

“However, to achieve broader adoption of DLT, several steps remain. Firstly, regulatory frameworks need to be harmonised across jurisdictions to provide clarity and assurance to market participants. Secondly, the industry must invest in interoperability solutions to ensure seamless integration with existing financial systems. Lastly, robust cybersecurity measures are crucial to safeguard the integrity of DLT-based platforms.

“Eurosystem’s trial signals to the fintech sector that DLT is no longer a theoretical concept but a practical solution with tangible benefits. This successful experiment will likely spur further innovation and investment in DLT, accelerating its adoption across the industry and paving the way for more advanced applications in financial transactions.”

Jack Dorsey’s firm Block has unveiled a significant advancement in Bitcoin (BTC) mining technology with the completion of its three-nanometer (3nm) mining chip.

The company is now finalizing a full tape out of the chip at a leading global semiconductor foundry, marking a substantial upgrade from its earlier five-nanometer prototype.

The new chip targets improved efficiency and decentralization in Bitcoin mining, aligning with industry needs as it transitions into the fifth mining epoch after the recent fourth halving of the block subsidy.

Drawing on the success of the tested 5nm chip prototype — which met all design expectations and yielded vital data — Block has optimized the 3nm chip to enhance performance and support mining operators in a fiercely competitive market.

According to the firm, these insights played a crucial role in developing the 3nm chip, which enhances mining hardware performance and enables miners to remain competitive in a challenging market.

Fully mining system

Beyond the standalone mining chip, Block is also pioneering a complete mining system. The system capitalizes on the company’s expertise in product and software development, system engineering, robust supply chain management, and comprehensive customer support. It aims to introduce innovations and improvements in mining hardware form factors and use cases.

The firm plans to leverage this integrated approach to spur innovation in mining hardware configurations and functional applications, thus meeting a broader range of miner needs.

Block said it has been engaging directly with the Bitcoin mining community to pinpoint challenges and areas for improvement across several aspects of mining operations, including pre-sales discovery, purchasing processes, hardware reliability, maintenance, software features, transparency, and post-sales support.

The company has invited the mining community to continue offering feedback to further refine and enhance its products. Those interested can share their experiences and suggestions via the designated contact email as Block continues to update and expand its mining hardware solutions.

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Taiwan’s central bank has completed a feasibility study of wholesale central bank digital currency (CBDC) and is continuing to consider its introduction. The central bank is seeking feedback from business and academics and will continue to work on platform design, deputy governor Mei-lie Chu said on Dec. 7. 

In a lengthy speech at an event for bankers, Chu outlined what she called Banking 4.0, or “services embedded in customers’ daily lives,” including the integration of artificial intelligence and advanced mobile and digital technology into banking. She devoted about half of her presentation to CBDC.

Chu referred to Bank for International Settlements research and said she saw the advantages of CBDCs and tokenization of real-world assets. Furthermore:

“A central bank currency with clearing finality can serve as the operational basis for tokenization.”

Chu mentioned unified ledger technology in particular. A unified ledger, as the name implies, uses a single ledger in a “partitioned data environment” to achieve interoperability among systems.

Related: Financial Supervisory Commission of Taiwan awards first securitized token license

According to the website CBDC Tracker, Taiwan began CBDC research in 2020. It is further along in its development of a retail CBDC, and has already tested a retail CBDC in a pilot project with consumers and five commercial banks.

Today’s #Fintech Digest includes the Palau Ministry of Finance on its stablecoin proof-of-concept, Taiwan’s central bank on its wholesale #CBDC feasibility study, and the Basel Committee giving a thumbs down to permissionless blockchain-based crypto. pic.twitter.com/8qTY4QJqCH

— John Kiff (@Kiffmeister) December 8, 2023

Bank disintermediation and interoperability with other payment systems were outstanding issues in Taiwan’s CBDC research, Chu said. The central bank is taking a “prudent” approach to further development of a CBDC with no timeline for a decision, Chu added.

In addition, Taiwan’s Fubon Bank has participated with Ripple and the Hong Kong Monetary Authority in a reverse mortgage pilot project using Hong Kong’s e-HKD CBDC. It has also integrated China’s e-CNY digital yuan into its platform.

Magazine: China’s surprise NFT move, Hong Kong’s $15M Bitcoin fund: Asia Express