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DLT for IT service providers in the banking environment

SRC expert Botermann | DLT for IT service providers in the banking environment

Crypto assets based on blockchains move many states, companies and the world of banks and their IT service providers.

Distributed ledger technology (DLT for short) is the term used to describe the technology of “distributed cash ledgers”. The key difference: trans­ac­tions are legit­imized in a decen­tralized manner and stored with the partic­i­pants. As a disruptive technology, DLT makes numerous inter­me­di­ation and clearing points redundant. Banks are threatened with the loss of their position as anchors for trust­worthy transactions.

But this is precisely where the prospects for future business models lie, since it is precisely the banks that tradi­tionally have expertise in the safekeeping of confi­dential infor­mation. The decisive technical trust anchor of every trans­action via DLT is the customer’s private key. The trusted management of this private key may prove to be a perspective for the evolution of banks’ business models.

To summarize: DLT appli­ca­tions offer IT service providers in the banking environment good oppor­tu­nities to adapt their own business models and also position themselves for the future. Services in the crypto custody business can be seen as a suitable entry point, which can be expanded and supple­mented in the future.

How can business models in the banking environment be adapted to these devel­op­ments? What oppor­tu­nities does the crypto custody business offer? What technical and regulatory require­ments must be met?

In the articles DLT for IT service providers in the banking environment (german), crypto custody business: starting point for business field expansion (german) and crypto custody business as a business area expansion for banks (german) published in gi GELDINSTITUTE and on cash.online, SRC expert Dr. Benjamin Botermann gives an insight and overview of challenges, oppor­tu­nities and stopler stones of the crypto custody business with distributed ledger technology (DLT).

The SRC experts will follow the exciting devel­op­ments in the field of cryptocur­rency and digital euros for you and support you in the realization of your crypto­custody business. We will be happy to inform you about the possi­bil­ities to get involved in this innov­ative sector.

Kick-off for the Digital Euro

Kick-off for the Digital Euro

After long and intensive discus­sions at the European level, the starting signal for the digital euro was given on 14 July 2021. First, core questions on the impact on financial stability and monetary policy as well as on the legal framework and a possible technical imple­men­tation will be clarified within the framework of a two-year study phase. The goal of the intro­duction of the digital euro is still to meet the “needs of the people in Europe” and to serve as a supplement to already estab­lished payment procedures.

A final decision on the design of the digital euro is then expected after the study phase in mid-2023.

“We will enter into a dialogue with the European Parliament and other European decision-makers and inform them regularly about our findings. Individuals, merchants and the payments sector will also be involved,” said Fabio Panetta (Member of the ECB Executive Board and Chair of the Digital Euro Task Force).

Results of the practical test

The preparatory basis for the landmark decision was the results of a practical test phase over nine months, which examined, among other things, technical aspects of distributed ledger technology (DLT for short), data protection, anti-money laundering and the use of existing systems (e.g. TARGET Instant Payment Settlement — TIPS for short). Energy aspects of possible archi­tecture concepts were also inves­ti­gated with the aim of limiting energy consumption to well below the current require­ments of known cryptocur­rencies, e.g. Bitcoin.

Focus on data protection

Consumer protection and data protection aspects are central aspects of the discussion about the digital euro, in addition to the technical imple­men­tation. For consumers, the digital central bank money repre­sents a direct claim against the central bank, which under certain circum­stances can be limited by a cap in the “wallet”. The compe­tition of the digital euro with cash becomes clear in the discussion about the anonymity of payments. It seems clear that — also with a view to combating money laundering — there will be no completely anonymous digital euro.

Assessment of the German Banking Industry

In a statement, the “Deutsche Kreditwirtschaft” empha­sises the digital euro above all in its preser­vation of the monetary sover­eignty of the Eurozone. The digital euro is assessed as a forward-looking means of payment in a digital economy, which coher­ently comple­ments the existing and proven systems and struc­tures. The aim should be to achieve the greatest possible synergies with existing payment solutions so that access to the digital central bank money can be secured for end consumers. There is a consensus that digital­i­sation is changing payment trans­ac­tions and that the ECB must carefully design the digital euro to ensure financial stability. In order to implement the envisaged activ­ities, high invest­ments are inevitable for both the insti­tu­tions and the economy.

Will cryptocur­rencies become more than specu­lative objects?

Estab­lished cryptocur­rencies such as Bitcoin and Co. are gaining impor­tance as specu­lation objects in asset management, but they are currently rather meaningless in payment trans­ac­tions. Never­theless, the ongoing discussion about private cryptocur­rencies, e.g. Diem from the Facebook universe, has certainly driven the discussion about the Digital Euro.

The SRC experts follow the exciting devel­op­ments in the field of cryptocur­rency and the Digital Euro for you and support you in the reali­sation of your crypto custody service. We will be happy to inform you about the possi­bil­ities to get involved in this innov­ative sector.

How cryptocurrencies create new market opportunities for banks and financial services providersHow cryptocurrencies create new market opportunities for banks and financial services providers

How cryptocur­rencies create new market oppor­tu­nities for banks and financial services providers

“The impor­tance of cryptocur­rencies is growing ever faster. Banks can use their expertise in imple­menting regulatory issues to gain a good starting position in the market for cryptocur­rency services such as key custody. Through their existing compe­tences in dealing with crypto­graphic proce­dures, e.g. in autho­ri­sation, online banking or PIN protection, banks already bring along a large part of the technical prereq­ui­sites for entering this business field.” SRC expert Dagmar Schoppe explains the oppor­tu­nities for banks and financial service providers with regard to the devel­opment of cryptocur­rencies in an article just published on the specialist platform “it-daily.net”.

Are there depen­dencies on the digital euro?

The increasing interest in cryptocur­rencies — in addition to the rapid rise in the euro equiv­alent to a bitcoin observed in recent days — should also be seen in connection with the discussion about the intro­duction of a digital euro. The digital euro — according to the perception in the German banking industry (DK) — is assessed as a forward-looking means of payment in a digital economy that coher­ently comple­ments the existing and proven systems and struc­tures. In this context, the greatest possible synergies should be sought with existing payment trans­action solutions so that access to digital central bank money can be secured for end consumers.

New oppor­tu­nities in the digital­i­sation of business processes

Insti­tu­tions face the challenge of increasing their visibility in this new market segment in order to then be able to respond to requests from customers, retailers as well as service providers. In the medium term, the generally growing interest in cryptocur­rencies can also result in oppor­tu­nities for insti­tu­tions that, for example, offer their corporate customers self-issued cryptocur­rencies to support them in the digital­i­sation of their business processes.

The SRC experts follow the exciting devel­op­ments in the field of cryptocur­rency and the digital euro for you and support you in the reali­sation of your crypto custody service. We will be happy to inform you about the oppor­tu­nities to get involved in this innov­ative sector.

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