Bank of Korea says blockchain, DeFi technologies have potential to “transform financial paradigms”
Comments on ability of cryptocurrencies to replace fiat
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임준혁 2021년 8월9일 19:00
한국은행. 출처=한국은행 제공
The Bank of Korea. Provided by the BOK

The Bank of Korea (BOK) has acknowledged that decentralized platforms and blockchain technology have the potential to change financial paradigms.

On Aug. 8, the BOK released a report on "the potential of digital innovations to transform financial paradigms.” The report acknowledges that "even though virtual assets are privately developed and managed, they have the potential to replace fiat currencies as economies become increasingly digitalized."

The report also comments that blockchain technology and crypto currencies have given birth to "a new financial ecosystem that does not rely on conventional financial firms and systems."

What's notable is that the report also delves into the concept of decentralization. It acknowledges that decentralized platforms that facilitate P2P transactions have drastically reduced the costs of financial transactions by eliminating brokers and mediators. It also comments on the potential role of stablecoins in cross-border remittances.

Such innovations have "the potential to transform financial paradigms," the report concludes.

However, the BOK doesn't think DeFi or cryptocurrencies will make traditional finance obsolete -- at least during the foreseeable future.

The report states that as of June 2021, the DeFi market comprises a mere 0.03% of the value deposited in US banks, and that the majority of people still rely on brokers and mediators to conduct their financial transactions.

In order for DeFi to truly become mainstream, the report concludes, platforms need to earn the trust of the wider public in terms of security and risk management. It also declares the necessity of a clear regulatory framework.

DeFi enthusiasts may be pleased to hear, however, that the BOK predicts that DeFi and decentralized platforms aren’t going away anytime soon, and will in fact continue to grow in both relevance and scale.

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