Japan’s Blockchain Study Group, consisting of four large financial and accounting firms, today published a report on how blockchain technology will affect their industry. Local bitcoin exchange bitFlyer assisted the group by building an interbank transaction prototype.
Report Acknowledges Bitcoin’s Contribution
The Blockchain Study Group (BSG) formed in December 2015. It includes Mizuho Financial Group, Inc., Sumitomo Mitsui Banking Corporation, Mitsubishi UFJ Financial Group, Inc., and Deloitte Tohmatsu Group. All are major players in Japan’s financial industry.
Its report, titled “Practical Experiment of Blockchain Technology in Japanese Domestic Interbank Payment Operation” mentions bitcoin by name several times. It examines how the Japanese financial industry could leverage a similar technology to stay competitive with those in the U.S. and Europe.
BitFlyer CEO Yuzo Kano, a veteran of the traditional banking and finance world, told Bitcoin.com his company offered insights into consensus algorithms and practical advice on real-world blockchain applications.
“We have a deep knowledge of consensus algorithms, which we’ve been researching since the company was founded. We have also been running our bitcoin exchange with an original bitcoin daemon/wallet system, which we built ourselves from the ground up — most blockchain companies don’t have experience at that level. It has given us a lot of ideas and expertise.”
The BSG selected bitFlyer from multiple candidates to build a blockchain prototype to demonstrate the technology.
Notably, the group chose a Practical Byzantine Fault Tolerance (PBFT) consensus algorithm similar to Hyperledger‘s, over popular cryptocurrency systems like proof-of-work and proof-of-stake. This is because the latter two present a risk of blockchain forks, the report states. However it also registered the concern that a core node failure could bring down a PBFT network.
Blockchain Reduces Costs, Can Be Applied to Simple Transaction Operations
The report found the consensus prototype performed without major issues. The findings also showed blockchain technology would reduce costs. However it lists some reservations with applying blockchain tech outside the simple payments arena.
BitFlyer’s prototype achieved 1,500 transactions per second, which the BSG considered acceptable. The Japanese banking industry’s current Zengin settlement system has a peak of 1,388.
Blockchain would reduce industry costs across the board. Savings would come from a lower need for hardware and OS licences, middleware applications and maintenance.
However it recommended further research to decide how this could scale up to accommodate other functions. Smart contracts could possibly fulfil these, but the group did not test them in this experiment.
The BSG considers this report a first step. It will continue to examine blockchain technology, saying it expects “many and repeated practical experiments in the financial industry” that will lead to improvements.
Where Will Japan Use Blockchain?
The next real-world application for blockchain technology will probably not be in finance though, Kano said. He predicted “other web services” will deploy it first, proving its capabilities at a less-critical level.
However he remained optimistic the technology will one day find a place in traditional finance. “After a long period of time, these companies have become very knowledgeable about blockchain technology,” he concluded.
The Blockchain Study Group’s full report is available in English here.
Images via Shutterstock, bitFlyer