Japan Exchange Report: Cloud Edging Out DLT for Capital Markets Needs

The Japan Exchange Group (JPX) has released a new working paper on the use of distributed ledger technology (DLT) in capital markets, one that seeks to build on its past reports and proofs-of-concept.

In a paper, released Thursday, JPX analyzes how different types of distributed ledgers – including Hyperledger Fabric, R3's Corda and JPMorgan's Quorum platform – can be utilized to help companies become more efficient when conducting transactions, with much of the work revolving around the viability of the emerging technology for financial services.

However, the report notably goes on to detail possible stress points in the adoption of DLT.

These include difficulties when trying to use advanced cryptography for the confidential transfer of assets, performance issues with certain transactions and possible centralization risks that could result from a consolidation of blockchain nodes in the cloud.

Still, JPX's researchers go so far as to suggest that financial institutions should perhaps seek capital markets solutions with existing cloud solutions in the short term. The authors, in particular, cite the effort by Swift to move cross-border payments to the cloud through its Global Payment Innovation (GPI) project as one likely to be more successful.

Despite these potential issues, however, the authors conclude that more experimentation on DLT is needed to realize its potential benefits.

According to the report:

"It is a highly meaningful process for users of new technologies to proactively study a new technology and provide feedback to developers based on practical needs. We believe that steadily evolving financial services by implementing new technologies for production use in this industry is essential, even if the new technologies are not very different from existing technologies."

As such, the report positions JPX as perhaps one of the rare large financials interested in publishing unbiased research on permissioned blockchains, a field of study that even the authors note has seen fading interest due to the recent spike in the value of public cryptocurrencies.

The JPX has already been driving blockchain development, launching a consortium last March to test applications and determine how such a platform could operate with real-world applications.

JPX image via Takashi Images/Shutterstock