Bank of Canada Explores Blockchain-based Settlement for Asset Trading
The Bank of Canada (BoC) has published a working paper exploring the possibility of using Distributed Ledger Technology (DLT) for the settlement of asset trading. The paper investigates if securities can be settled through a blockchain and what gains are to be made comparable to conventional systems.
The paper explores the benefits and drawbacks of using a proof-of-work (PoW) protocol much like the Bitcoin network to ensure a delivery versus payment (DvP) mechanism. The current system for settlement cycles in securities markets can be long due to intermediaries such as brokers and custodians. An order to buy crypto can be placed through a broker in which they could locate a seller using a custodian creating many intermediaries.
BoC is looking towards DLT for shared databases of securities ownership to be updated without the reliance of third-party intermediaries. The smart contracts can be used to automatically provide DvP when there’s no central authority. The blockchain will be used as a record-keeping system tracking security ownership and payment information.
The process will use the block time to determine the frequency of which security transactions are settled whilst using the block size for the size of each batch. This allows users to choose the speed of the settlement by posting transaction fees to have it added to the block which benefits time-critical transactions.
Overall the Blockchain model described in the working paper will handle the ownership transfer of the security and payment to implement a DvP mechanism to potentially mitigate settlement risk. The blockchain will be permission-less taking out the third parties and any order to buy crypto will be automatically updated and provide real-time information.
The BoC is ahead regarding exploration of blockchain technology and the potential benefits it can bring to current systems. Most other banks have shown interest but not as much progression with incorporating the technology.
Check out BC Bitcoin for all you crypto buying services or to keep informed on the latest news in the space.