The German central Bank has revealed the details of a preliminary prototype for blockchain-based settlement, which it developed in collaboration with Deutsche Börse.

Speaking at the G20 conference "Digitising finance, financial inclusion and financial literacy", Wiesbaden, on 26 January 2017, Carl-Ludwig Thiele, Member of the Executive Board of the Deutsche Bundesbank, said that using blockchain technology the prototype can settle payments, transfer securities, process basic delivery-versus-payment transactions where securities purchases are settled and paid for simultaneously, and process basic corporate actions, such as coupon payments on bonds and redemptions of maturing securities.

Thiele said that the project basically aims to explain how blockchain technology works, explore the security and reliability of blockchain-based transactions, look into the factors which affect the costs of such transactions, the efficiency and effectiveness of blockchain-based processes and how the technology could improve existing processes. For developing the prototype, the bank opted for a concept based on a Hyperledger blockchain.

“Our conceptual study shows that blockchain technology can be adapted to meet the current needs and requirements of the financial system. The prototype works. Having said that, its further development for mass use is still presenting many challenges”, Thiele said.

He added that the conceptual study is far from being market-ready, and that they are at the preliminary stage with a test application, with which they are able to simulate large-volume delivery-versus-payment securities transactions. Whether this application could be adapted for mass use or whether it is a cost-effective viable option remains uncertain at the moment, Thiele said.

He concluded saying, “To summarise: our joint project has seen the development of an elementary, but functional, blockchain-based application, which caters to the basic requirements of the financial sector.

“With this as our starting point, we aim to develop a technically more sophisticated prototype, capable of providing information on technical performance and thus allowing comparison with our present settlement infrastructure.”