Blockchain revolutionises payment transactions and capital market processing

DZ BANK Board Member Thomas Ullrich: "Blockchain is the central building block for the banking infrastructure of the future."

Blockchain technology is said to have the power to transform entire industries. This also applies to the financial sector. Already, cryptocurrencies that work on the basis of the Blockchain are leading to a rethink among banks. More and more financial institutions are enabling institutional and private customers to access Bitcoin and Co. "However, the greatest benefit of this technology is in capital market processing, as transactions become more efficient, cheaper and more secure thanks to the decentralised database," said DZ BANK Board Member Thomas Ullrich in a press briefing.

Over the next year, DZ BANK will not only launch a solution for direct investment in cryptoassets together with Atruvia and dwp Bank, but also implement a crypto custody platform for customers and the Bank itself. Digital financial instruments of any kind can be settled and held in custody via it. "This will allow us to build long-term expertise in Blockchain technology," Ullrich said. "That's important because Blockchain-specific aspects are now making their way into many areas of finance, and the technology will be the central building block of infrastructure for decades to come."

Cryptocurrencies remain highly speculative segment

"Even if some see Bitcoin & Co. as the future of the monetary and financial system: Cryptocurrencies have opened up new opportunities, but traditional currencies are by no means obsolete," says Sören Hettler, Head of Investment Strategy and Private Clients at DZ BANK, commenting on the current debate about alternative currencies. It is true that there are now convenient entry points into cryptoassets for both retail and institutional investors. However, it remains highly susceptible to fluctuations. Market capitalisation has fallen from $3 trillion in No-vember 2021 to around $1 trillion currently. "Moreover, there can be no talk of digital gold at the moment," says Hettler.

Capital market experts: Clear and uniform framework conditions are central

Gerd Hartung, Head of New Digital Markets at Deutsche Börse, sees fundamental changes coming to the securities markets: "The next stage of digitisation goes beyond processes and takes a look at the financial instruments themselves." He advocates transparent sets of rules with clear standards and regulatory embedding that can be used collaboratively by many participants. "This will require significant effort and investment across the board, including the adaptation of business models."

But even beyond the securities business, the opportunities are enormous. DZ BANK has already gained initial experience with smart derivative contracts, which digitise over-the-counter derivatives, and the Finledger digital promissory note platform. "We have been able to show what great potential there is in the use of technology in capital market processing as well," says Dr. Holger Meffert, Head of Securities Management at DZ BANK. "Blockchain not only allows us to process transactions much faster, but also to merge processes across a wide variety of financial instruments. This not only significantly reduces operating expenses and default risks, but also allows us to minimise liquidity."

The Digital Retail Euro does not need Blockchain

For the European Central Bank's Digital Euro, on the other hand, Blockchain offers no significant added value. Here, the focus is on other topics. For the central bank, the priority must be to provide an anchor of stability for the digital age. In addition, the sovereignty of the Euro area in the area of payment transactions is to be guaranteed. "These goals can be achieved with classic payment systems," says Claus George, Head of Digitisation & Innovation in Transaction Banking at DZ BANK. "A central bank currency based on Blockchain technology, on the other hand, may harm the stability of the financial system by inhibiting innovation by the private sector." This includes the tokenisation of fiat money, which several large commercial banks from the Euro area are working on. "Such initiatives are important, especially with a view to the competitiveness of the Euro area. A government solution has rarely yielded the better solution in recent decades."