The European Union financial regulatory agency, European Securities and Markets Authority (ESMA), has predicted that an increased use of distributed ledgers — including the blockchain — could improve the verification of clearinghouse and other transactions.
ESMA Experiments with the Blockchain
ESMA launched a consultation team to investigate the matter in more detail, and in an isolated setting. While the team said it was aware of some issues raised about bitcoin, its focus will be strictly limited to the use of blockchain technology in relation to securities markets. As it is, the team is indifferent to the use of Bitcoin and other cryptocurrencies, saying the regulation of virtual currencies would be left up to the discretion of the European Central Bank or the European Banking Authority.
The team says it understands that the integration of blockchains will almost certainly come with some advantages, but they were also interested in understanding the specific problems of relying on the technology. It is unknown what problems the team expects to see while experimenting with distributed ledgers because the subject was not discussed any further than that.
However, the ESMA consultation team did predict that the use of distributed ledgers would improve the verification of transactions. The team’s supervisor predicted that blockchain technology would specifically improve clearing and settlements markets; as the use of blockchains could make the process leaner by removing the amount of intermediaries involved.
The team’s discussion paper on the use of distributed ledgers detailed how distributed ledgers could work to improve the verification of transactions. An excerpt reads:
“Certain proponents of the DLT believe the clearing and settlement of transactions could effectively combine into a single step, which would be (almost) instantaneous. […] This could create a number of additional benefits, including reduced counterparty risk and less need to post collateral.”
Additionally, ESMA predicted that blockchains could reduce costs for the providers of securities by automating monitoring and reporting of transactions, as well as other maintenance functions. Individual ledgers could be replaced by one single distributed ledger that is replicated among a network of computers, thus eliminating the costs of maintaining different ledgers. Furthermore, the paper thinks that a removal of intermediaries would reduce transaction costs — a common theme among all blockchains.
The EU Joins the Blockchain Revolution
As more people have become aware of the blockchain the more the technology has been mentioned as a way to improve just about everything. Fortune even wrote an article in May, 2016 titled “Here’s Why Blockchains Will Change the World.” Many similar stories have been written by major outlets explaining why the open blockchain, in particular, will revolutionize the world.
The amount of articles written about blockchains have spiked in the last year, and it has intersected with an increased interest in blockchains among the general populace — as evidenced by the amount of people googling the word in the last year. The interest has even expanded to government entities all over the world hoping to find use value in the tech. Some believe that the blockchain could be used to make voting more transparent, and in May the IDC published a study showing how the blockchain could make government more efficient.
Whether or not the blockchain ultimately lives up to its hype is still up in the air, but one thing is for certain — the European Union us showing that blockchain technology will no longer go unnoticed.
What do you think of ESMA’s prediction that blockchains will improve the verification of transactions? Let us know in the comments below!
Images Courtesy of prisonphotography.org, bitcoinist.net
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