Bank of England considers blockchain technology to improve financial infrastructure

Few would deny that the financial ecosystem needs an overdue overhaul sooner rather than later, as the old system no longer meets the needs of growing consumers. In the UK, the Bank of England will develop a blueprint for this overhaul that focuses on new payment methods and distributed ledger technology.

Bank of England considers using distributed ledger technology

Improving the financial ecosystem across the UK is undoubtedly a huge challenge, and the Bank of England is no exception. At the same time, as more and more consumers begin to use new payment methods, much of the preliminary work has been done. In addition, other major banks are also looking at blockchain technology, which can provide distributed ledger technology to financial institutions and consumers around the world.

The announcement comes on the heels of the UK government’s policy support for the use of distributed ledger technology. Creating a more transparent, cost-effective and widely accessible financial infrastructure would benefit everyone globally, and would also allow the Bank of England to expand its customer base around the world.

Especially when it comes to settling payments, more and more people want to settle payments faster. Keeping in mind that one third of the UK's annual GDP (gross domestic product) is settled every day, it's clear that the old system can no longer handle so many transactions and is the main cause of delays. This situation needs to be addressed as soon as possible, and proper testing needs to be carried out to find the root cause of the problem.

The last thing the UK economy needs right now is a complete collapse at the heart of its payments system. When traditional methods fail to meet the needs of consumers to send and receive payments, the UK economy will suffer. Some of them may even look for alternative solutions, such as Bitcoin or other digital currencies.

That said, the Bank of England is well aware of the role that distributed ledger technology and digital currencies will play in creating a more secure and stable financial infrastructure in the future. Giving everyone participating in a distributed ledger network the same copy of the ledger will allow settlements to be completed more quickly because there will no longer be a central party overseeing every transaction.

Real-time payment vs. financial security

Another problem the Bank of England needs to address is that consumers now prefer to make payments in real time. On the surface this sounds like a good solution, but lawmakers will have a hard time avoiding money laundering, identity theft and terrorist financing.

Bitcoin can provide a solution to this problem, because the high transparency of digital currency can prevent money laundering or terrorist financing. At any time, anyone can track its transaction records on the blockchain. In addition, because each wallet address is unique, identity theft is impossible in the Bitcoin field.