A newly published paper examines the viability of public crypto networks as financial market infrastructures, presenting a largely optimistic view of their potential for innovation. The study was co-authored by Ulrich Bindseil, the European Central Bank’s (ECB) Director General for Market Infrastructure and Payments, and Columbia University’s Omid Malekan.
The authors argue that public blockchains offer significant advantages, stating they could enable financial market infrastructure to achieve “unprecedented efficiency.” These benefits include supporting decentralized finance (DeFi), reducing reliance on intermediaries, and facilitating automation.
With Europe’s potential introduction of a central bank digital currency (CBDC) in the next three to four years, the paper highlights that there is “no technical reason why a CBDC can’t be issued on a public crypto network.” It suggests that, if regulatory concerns are addressed, a central bank could issue a cash-like claim against its balance sheet on Ethereum, just as it could on a permissioned ledger managed by the Bank for International Settlements (BIS).
Despite the ECB’s recent wholesale settlement trials using permissioned distributed ledger technologies (DLTs), the authors express skepticism about their practicality. They argue that permissioned blockchains function as overly complex databases burdened by cryptographic inefficiencies, with institutions primarily using them for privacy, scalability, and regulatory compliance.
The paper concludes by emphasizing that financial engineers stand to gain the most from advancements in information and communication technology (ICT). The authors suggest that future financial products will be designed with innovation in mind, “inspired by what can be and unburdened by what has been.”
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