The Bank of Spain has called for a thorough investigation into International payments carried out using blockchain technology, as it believes that certain elements of the Blockchain system, though erratic, can prove useful in making future international transactions efficient, fast and transparent.
Possible Outcomes of DLT Implementation
Spain’s central bank specifically singled out distributed ledger technology (DLT) as having great potential for the Spanish financial system. It did mention however, that in order for DLT to be practical and efficient with the European financial system, it would be likely that its implementation should lean more toward a centralised or private system. To this end, it called for more investigation into the possible application of DLT in European finance.
According to a report from Spain, José Luis Romero Ugarte, a member of the General Directorate of Operations, Markets and Payment Systems of the Bank of Spain earlier acknowledged that the traditional financial sector stands to benefit most from DLT.
According to Romero Ugarte, alongside improved speed and transparency in the International payment process, the use of blockchains can also minimize transaction cost between different banks. The city of Santander has benefited immensely by adopting this model since 2016.
Although Romero Ugarte may advocate the use of distributed accounting technology, he doesn’t consider it to be a direct replacement for the current centralized interbank payment system. In fact, he also urges for caution as he shares his reservations about the robustness of the DLT networks that implement protocols based on bitcoin’s source code.
Criticisms of DLT System
While DLT may work well for financial transactions, like all other systems it has its flaws which the Bank of Spain also acknowledges.
Romero Ugarte believes that DLT consumes too much energy, which translates into a high environmental cost. He also believes that persistent scalability problems as seen in the blockchain system could congest a network, as a result of a number of unfinished transactions.
With respect to information privacy, Romero Ugarte acknowledges that a private block chain allows for a user to share certain data and this could in a way be advantageous where one factors the traceability and immutability of transactions.
Romero Ugarte’s opinions are in line with other opinions previously expressed by other representatives of the bank. In May CryptoGlobe reported that the Governor of the Bank of Spain stated that “cryptoactives” constitute ” more risks than benefits.” The Governor was nonetheless keen about the potential of distributed accounting technology in financial growth.