Why the stock market loves blockchain

The Deutsche Bundesbank (Germany’s central bank) and the German Stock Exchange are working together to create a blockchain prototype that can enable securities settlement functions in a centralized digital currency delivery model, another example of the stock market falling in love with blockchain.

This system prototype can also transmit digital currency or digital securities independently, and has the ability to handle basic corporate behaviors, such as securities coupon redemption and expired securities redemption.

Germans are willing to try blockchain technology

In a joint press release, the Bundesbank and the German Stock Exchange announced that they plan to develop a prototype in the coming months that will be used to analyze the performance and scalability of “such blockchain applications.”

Carl-Ludwig Thiele, member of the Executive Board of the Deutsche Bundesbank, said:

“The Deutsche Bundesbank and the German Stock Exchange are collaborating on this blockchain prototype to verify whether the technology can be used for financial transactions and, if so, to understand how it can be implemented. The Deutsche Bundesbank hopes to use this prototype to better understand blockchain technology and to realize its potential.”

This isn’t the first time a stock exchange has considered blockchain

The German Stock Exchange and Deutsche Bundesbank’s blockchain prototype will advance the development of blockchain technology, but it is not the first stock exchange to use this technology.

The Korea Stock Exchange is exploring an over-the-counter market based on a blockchain platform. Nasdaq has also announced its first private securities issuance using blockchain technology, and the New York Stock Exchange is also exploring the potential of blockchain.

The London Stock Exchange is studying the various uses of blockchain and looking for new ways to achieve cross-European securities trading, delivery and clearing. The Australian Stock Exchange is doing something similar to its European and Japanese counterparts, and IBM is also working with Japanese banks to explore the use of blockchain for clearing operations.

Blockchain technology is a natural fit for the stock market, where assets are transferred and exchanged frequently. A private blockchain or ledger that establishes specific rules and regulations for a particular exchange would benefit that exchange.

There is debate as to whether future exchanges should be built on a public blockchain (like the Bitcoin blockchain) to provide greater access and transparency to the public. Will blockchain become the cornerstone of future stock exchanges? While it is highly likely, we will have to wait and see.

What Will This German Blockchain Prototype Do?

This prototype focuses on exploring the use of blockchain technology in the securities field.

This prototype has many uses, including blockchain-based payment methods, securities transfers, and securities transaction settlement for both timely and delayed payments.

The prototype also maintains confidentiality and access rights within a flexible and adaptable blockchain-based permissions framework. The central bank also claimed in a press release that it could be used to streamline account reconciliation processes and regulatory reporting.

The prototype will also introduce a blockchain concept from the Linux Foundation's Hyperledger. The Bundesbank said the project will comply with existing regulatory requirements.

The CEO of the German Stock Exchange Group commented on the joint statement and was very optimistic about the efficiency potential of blockchain. He said, "Together with the Deutsche Bundesbank, we are bringing radical technological opportunities to the financial sector in an innovative way. We will do our best to realize the technological potential of blockchain, better understand this technology and minimize the risks it brings."