I made this headline immediately challenging for anyone not in my space, as it incorporates all the TLAs (three letter arconyms) to confuse and abuse you.
A fascinating release from Europe’s Central Bank announced that they aim to move soon to distributed ledger technology (DLT) settlements for payments last week. What did the announcement say?
The Governing Council of the European Central Bank (ECB) decided to expand its initiative to settle transactions recorded on distributed ledger technology (DLT) in central bank money. The initiative will follow a two-track approach.
First, as soon as feasible, the Eurosystem will develop and implement a safe and efficient platform for such settlements in central bank money through an interoperability link with TARGET Services. A concrete time plan will be announced in due course.
Second, the Eurosystem will look into a more integrated, long-term solution for settling DLT-based transactions in central bank money. This will also include international operations, such as foreign exchange settlement.
So first phase is building the DLT infrastructure, and second phase is integrated CBDCs (Central Bank Digital Currencies) with it. These will be the foundations for building a digital euro, as the digital euro project is part of the ECB’s larger goal to achieve a single market for capital across Europe, according to the ECB website.
Interestingly, this has been something the ECB has now been working for over half a decade so, where is this going? Who knows, as I commented that CBDCs aren’t working yet, after all who needs them?
From a retail perspective, not many – they worry too much about being tracked and traced – but, from a wholesale perspective, CBDCs will be pretty useful. So TARGET2 integrated with a digital euro CBDC could be a sweet spot. After all, JPMorgan Chase did this internally with the JPM Coin.
JPM Coin is a value token on the Quorum consortium blockchain, using software (called “Quorum”) also built by JPMorgan Chase, and is used to facilitate interbank payments on the Interbank Information Network (IIN).
This means you can have real-time global payments and settlements in a T+0 world where everyone is connected to everyone with trust through distributed ledgers that are immutable.
Sounds like a wonderfully visionary future and, imho, ECB is trying to emulate JPM’s example. The only spanner in the works is quantum computing that may kill all the things that make DLT desirable today.
Using quantum mechanics, the dark underworld could decrypt the private key from a public key, enabling bad actors to control, and ultimately access, others’ cryptocurrencies. This potential to break encryption and disrupt security is what makes quantum computing a potential threat to cryptocurrencies.
Solution?
A quantum resistant blockchain. Did I mention this before?
The thing you realise is that when it’s hard enough to get your head around crypto, blockchain and DLT, when you throw quantum into the mix, does any bank CxO have any clue what’s going on?
