The Depósito Central de Valores and the Central Bank completed a study for the crypto bond issuance project using Blockchain technology
AFTER COMPLETING THE FIRST STAGE OF THE PROJECT, DCV AND BCCH CONCLUDED THAT THIS TECHNOLOGY IS APPLICABLE AND THAT IT EFFECTIVELY HELPS TO REDUCE RISKS AND IMPROVE INSTRUMENT ISSUANCE PROCESSES.
May 13th, 2020.- The Depósito Central de Valores (DCV) together with the Central Bank of Chile (BCCh) inform that they have completed the study phase of the project that evaluates the technical feasibility of a new solution for the creation of instruments by the BCCh using Blockchain.
DLT “Distributed Ledger Technology”, typically known as Blockchain, provides a series of benefits to the financial market, such as transparency in information, immediacy, and process optimization. In this context, DCV and the BCCh have been working for 5 months on this project, whose purpose is to understand and adopt new technologies (such as DLT) in the processes related to the BCCh (in its role as issuer) and DCV (in its role as custodian). Likewise, this project also addressed the technical feasibility of the bonds issued by the Central Bank in the primary market.
These 2 objectives were fully covered in the first phase that was considered: design of the conceptual model, proof of concept and technical feasibility analysis. The principal conclusion is that this technology is applicable and that it effectively helps reduce risks and improve instrument issuance processes.
The principal benefits for the Chilean market are that it allows to shorten the term for the issuance of instruments and to model a new process that makes use of the Blockchain advantages such as transparency, resilience, and immediacy.
After the end of this first phase, both institutions will work on a second stage that, among other points, will address the development of graphical interfaces and a legal study on the applicable regulatory framework for the issuance of Cryptographic Assets.
What is Blockchain?
Blockchain is a type of DLT characterized by a distributed data structure where each new block in this chain represents a new state of the system (considering the last executed transactions).
Blockchain uses cryptographic techniques to digitally sign blocks and ensure that chain transactions are not altered once the block is closed and signed. The latter is done through information distribution mechanisms that allow defining the final state of the platform, its assets, balance sheets and addresses, which are called consensus mechanisms.
In a blockchain network, consensus algorithms represent the security and stability of the platform. These mechanisms represent the capacity of a system in terms of allowing its actors to agree on the state of the information and the validity of the transactions. The type of mechanism, its complexity, and use will depend on the particular case to be developed. Each case and use are specific and therefore the needs of the platform determine the consensus algorithm to use. A key factor is the differentiation between a public and a private platform, where these algorithms vary according to the environment in which they are deployed.
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