Since the advent of blockchain technology, there has been a growing realization that its potential for solving a myriad of problems in modern industries is virtually unlimited. So far, the technology has thrived in enabling a platform for the cryptocurrency industry and is growing in popularity in other industries as well. However, according to an EU banking regulator, the use of blockchain, also referred to as DLT (distributed ledger technology) comes with a couple of risks as well.
EBA Releases a New Report on DLTs
In a new report published by the EU banking regulator, there are both benefits and risks of using decentralized ledger technology, especially in the finance sphere. The report from the European Banking Authority (EBA) was published on Tuesday and discussed the growing trend of financial technology, highlighting blockchain as one of the upcoming technological solutions for identity authentication as well as cross-border trading.
The report went on further to explore the different use cases for smart contracts and blockchain technology in more detail, identifying the novelty of DLTs while also pointing out a variety of issues. According to the report by the EBA,
A number of opportunities emerge from the use of DLT and smart contracts for trade finance. The most promising are the potential efficiency gains, cost reduction, and lower risk of duplicate financing and loss or manipulation of documents.
In contrast, however, the report from the EU banking regulator also noted that there are potential risks involved in using blockchain and DLTs as some of the uncertainties that can produce huge risk for players in the financial industry include conflict of interest. The report explained EBA’s point of view with an example, whereby “a digitally signed contract might not be enforceable in all the jurisdictions.” In such a case, the report indicated that it would be “essential to establish the applicable jurisdiction, in case of conflict, and the dispute mechanisms, when a dispute arises.”
EU Banks on IBM’s Blockchain
Furthermore, the report pointed out the fact that Blockchain still has an issue with scalability and that even though the technology can provide solutions that are capable of streamlining ID verification for European banks, the issue of application is still a hurdle for the banks to deal with. In this regard, the report mentioned that DLTs are yet to be capable of providing comprehensive due diligence processes that securely and privately share data.
These developments come at a time when the live cross-border trades have just recently been announced by a group of EU banks in a move to develop blockchain’s capabilities and enable outreach to other European markets. The banks conducting the cross-border financial trades announced the move on Tuesday, and are set to build on IBM’s Blockchain platform.
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