UPDATE 2-Canadian trial finds blockchain not ready for bank settlements | Reuters

(Updates with additional details from Jasper report and
conference presentation)

By Solarina Ho

TORONTO May 25 Distributed ledger technology, a
new approach for processing transactions that is being widely
tested across the financial industry, is not yet mature enough
to run a national interbank payment settlement system, the Bank
of Canada said on Thursday.

The bank reached that conclusion after a closely watched
year-long trial code-named “Jasper,” which sought to determine
whether the technology, known as DLT, could be used to improve
the performance of Canada’s wholesale interbank payment system.

“A pure stand-alone DLT wholesale payment system is unlikely
to match the net benefits of a centralized wholesale payment
system,” the Bank said in a report.

Jasper is among dozens of fledgling efforts by financial
institutions around the globe to find ways to use DLT, including
blockchains at the heart of digital currencies, to boost
efficiency, transparency and security of financial transactions.
Investors have pumped billions of dollars into blockchain
startups looking for ways to revolutionize the financial system.

DLT systems post records of data or transactions on multiple
computers connected through a common network, eliminating the
need to rely on a single, central authority.

Jasper tested two distributed ledger platforms. Phase one
was built on “Ethereum,” which the bank said made the system
more resilient but would be costly and raised key issues
including privacy. Phase two, which began in December, used
“Corda,” which addressed those concerns, but made the system
less resilient. Corda was developed by the R3 fintech
consortium, which includes Canada’s largest financial
institutions.

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Payments Canada, which runs the national interbank payment
system that clears more than C$175 billion ($130 billion) a day,
helped conduct the trial with assistance from Canada’s largest
banks.

“DLT is probably not going to push the current systems out
of the way,” Bank of Canada’s Grahame Johnson said at a
presentation on Jasper in Toronto. “But it did open up a whole
bunch of avenues for more work.”

The bank said that DLT-based interbank payment systems had
the potential to facilitate interaction with other parts of the
financial infrastructure and to lower costs.

It said it might test such systems with other asset classes
besides cash, or by integrating them with other domestic or
international distributed ledger systems.

“Blockchain is not a solution to every problem,” said
Christian Catalini, an assistant professor at MIT’s Sloan School
of Management. “The potential here is in the future — we’re
talking five or more years.”

($1 = 1.3418 Canadian dollars)

(Reporting by Solarina Ho; Editing by Jim Finkle and Sandra
Maler)

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