A new study has dealt a devastating blow to the proponents of blockchain, the underlying technology that supports Bitcoin and other digital coins, seen by crypto bulls as revolutionizing banking and other industries. After a two-year test, Germany's central bank – one of the world's most sophisticated – says the technology is no "real breakthrough," as reported by Bloomberg.

What Bundesbank Study Concluded About Blockchain

  • Study launched In 2016
  • Used blockchain to transfer and settle securities and cash  
  • Less speedy
  • Higher cost
  • A real breakthrough in application is missing so far

Source: Bundesbank, Bloomberg

Blockchain Prototype More Costly, Slower Than Current Standard

Bundesbank conducted the experiment in conjunction with Deutsche Boerse and aimed to see if blockchain could in fact serve cheaper and faster than current settlement mechanisms. The joint initiative launched in 2016 and concluded at the end of 2018.

Bundesbank President Jens Weidmann indicated that while the prototype “in principle fulfilled all basic regulatory features for financial transactions,” it was not superior from a cost or efficiency standpoint. In fact, the trial project using blockchain to transfer and settle securities and cash proved more costly and less speedy than the traditional way, he said.

“The blockchain solutions did not fare better in every way: the process took a bit longer and resulted in relatively high computational costs,” said Weidmann in a statement made in Frankfurt on Wednesday. “Similar experiences have been made elsewhere in the financial sector. Despite numerous tests of blockchain-based prototypes, a real breakthrough in application is missing so far.”

Yves Mersch, Executive Board member of the European Central Bank, noted that it is important to differentiate between “assets” like Bitcoin and the distributed ledger technology behind them. He cautions against policies that stifle innovation, emphasizing the fact that the ECB is an evaluator of new developments rather than an instigator, per CNN.

“Some of the technology is worth exploring and could also be of interest to central banks,” he said. “That said, our role is not to drive technological adoption by the industry and the general public, but to ensure that changing preferences can be satisfied in a secure way.”

Looking Ahead

Disappointing results from the recent blockchain study aside, many proponents of distributed ledger technology remain confident that the technology will prove itself in the long-run.

Meanwhile, crypto bulls have had much to cheer about in 2019. Bitcoin, the world’s largest cryptocurrency, has climbed more than 120% YTD as the broader S&P 500 experiences a new wave of volatility in the second quarter.