The blockchain technology has a great potential, but there is a long way before its large-scale implementation, says the head of the Fed Lael Brainard.
Blockchain is still in its infancy, Brainard stated during her speech at the Institute of International Finance’s annual meeting in Washington DC.
Brainard pointed to the three possible uses of the blockchain technology. The first one is the system of payments. According to the Governor, blockchain allows “significantly faster processing and reduced costs relative to the long and opaque intermediation chains associated with current methods of correspondent banking are promising potential benefits of the technology.”
The second promising area of blockchain application is information storage.
“Sharing one immutable record may have the potential to reduce or even eliminate the need for the reconciliation of multiple records linked to a single trade among and between dealers and other organizations.”
The third use of blockchain is less obvious but still important for modernisation of certain sectors of the economy. “In markets that are heavily paper-based and lack any central means for coordination, distributed ledger technology could potentially be leveraged to provide coordination that facilitates exchange, clearing, and settlement of obligations,” said Lael Brainard.
The main problem of the blockchain economy is the scale, the Governor believes.
“Many potential applications are in their infancy, and the industry may still be several years away from an application that is ready to be fully implemented.”
She also remarked that hacking attacks may undermine the trust of potential investors in the blockchain. “Such uncertainty around management and governance can raise doubts about the integrity of a system employing distributed ledgers.”
Lael Brainard received masters and doctoral degrees in economics from Harvard University and worked as an assistant professor at MIT Sloan School of Management. Later, she became a Deputy National Economic Adviser and Chair of the Deputy Secretaries Committee on International Economics in Bill Clinton’s administration.
Last April, Brainard presented an analysis of the blockchain economy at the Blockchain Roundtable hosted by the Institute of International Finance. In that speech, she openly expressed scepticism about the ability of the blockchain technology to change the existing clearing arrangements. She also highlighted the importance of compliance for the blockchain companies.
In the last talk, however, this wording is absent. Instead, Brainard puts forward BitLicense as an example of “a way to introduce non-traditional service provider.” At the end of the speech, the governor promised to clarify the position of the Federal Reserve research group on blockchain in a paper to be published this year.
The bitcoin community met the new Fed statement with criticism, some Reddit commenters being quite straightforward. “Bitcoiner sees the Fed as catastrophic, and already proved itself,” noted user nopara73 in an r/Bitcoin discussion.