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BaFin – Blockchain technology – Blockchain technology

BaFin - Blockchain technology - Blockchain technology



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Blockchains are tamper-proof distributed gegevens structures ter which transactions are recorded ter chronological order and mapped te an understandable and unalterable form without any centralised control. Blockchain technology makes it possible to save and manage ownership more directly and efficiently than before because it works on the voet of uninterrupted and unalterable gegevens recording.

On this pagina:

Introduction to blockchain technology

The analogy of a spreadsheet

A particularly quick and simplified way to understand the basic structure of blockchains is by way of analogy with a distributed spreadsheet. Such a spreadsheet is copied and distributed via a network consisting of many computers. Ter the case of blockchain technology, the pc network regularly updates the spreadsheet and records any switches. The information saved te a blockchain therefore exists spil a distributed spreadsheet (or database) that is continuously compared with the other versions of itself. This way of using networked computers gives rise to some distinctive features: blockchain gegevens retention does not occur at just one location, but rather on every laptop ter the network. This is especially beneficial to the system’s fail safety. Te the case of bitcoin, gegevens stored ter the blockchain is also public and can lightly be checked by each network participant. Blockchains have no central administration for a hacker to attack, harm or alter without authorisation.


The differences inbetween blockchains and more familiar technologies can be explained by comparing them to online collaboration implements. The conventional way of sharing digital documentation with business vrouwen is to send it to a recipient requesting that they edit it. The sender voorwaarde then wait for the editing to be ended and for a copy of the document to be returned before they can view any switches or make their own alterations. It is therefore unlikely for the sender to work on the document during this waiting period. A contrasting method is the use of web-based services for creating text documents. On such platforms, it is possible for numerous users to work on a document at the same time. Te this treatment , all parties have access to the same document at the same time and just one version of the document is seen by all parties at all times. Ter tegenstelling to blockchains, however, administration of the document is centralised te such cases.

Gegevens structures

Blockchain technology is relatively fresh. It will proceed to develop, spil will its potential applications. Thesis fresh opportunities will be accompanied by fresh risks.

Differentiating inbetween bitcoin, blockchains and distributed ledger technology

Bitcoin wasgoed the very first decentralised, virtual, digital currency (cryptocurrency) to successfully implement the blockchain concept. Ter this case, blockchains merely provide the technological framework ter which bitcoin operates. Therefore, albeit blockchains have gained prominence primarily spil the framework for this digital currency, bitcoin is just one example of the potential applications of the technology.

Even if the question of any further widespread market success of bitcoin remains unclear (due, among other things, to technical constraints), the concept of blockchain technology has found resonance ter many other areas.

The term “distributed ledger technology” (DLT) also often comes up ter discussions about blockchain technology. DLT refers to the technological framework for using collective digital ledgers on a distributed onderstel. Blockchains and distributed ledgers can, however, be used for numerous other forms of record keeping and have many other applications bijzonder from bitcoin, one example being the management of digital identities. Both te practice and ter academic discourse, the terms “blockchain technology” and “distributed ledger technology” are often used interchangeably spil synonyms for each other.

Network knots

The example of bitcoin can be used to demonstrate how a blockchain network is structured: a blockchain network consists of a system of interconnected computers, referred to individually spil “knots”. Te its role spil a knot, each rekentuig is connected to the blockchain network and can check and transmit transaction information using software designed for this purpose (the client ). Each knot retains a copy of the blockchain which is automatically downloaded when connecting to the blockchain network and is continuously updated.

Essentially, it is possible for each knot to obtain fresh bitcoins. Some knots solve cryptographic tasks or puzzles to do this. Such knots are referred to spil “miners”. From a spel theory perspective, this treatment results te the random selection of miners that determine whether and which transactions are valid and can be entered into the blockchain by adding a fresh block. Spil part of this process, the miner receives fresh bitcoins and all fees for the validated transaction. Miners often join together te “mining pools” to solve cryptographic tasks or puzzles. Te mining pools, however, only the technicus determines which transactions are entered into the fresh block and are deemed valid. By forming mining pools, individual miners have better chances of solving the cryptographic tasks and puzzles. Ter such instances, the fresh botcoins and transaction fees are collective among the miners participating te the pool .


Blockchains are a decentralised form of technology. Everything that happens within a blockchain network is a function of the network spil a entire. The particular way ter which transactions are verified means that certain aspects of conventional trading are not required, a chain of reliable intermediaries for example. All network knots work together to manage the database rather than leaving this task to a central administrator.


Saving gegevens te the blockchain means that risks associated with centralised gegevens storage are avoided. The network has no central weaknesses for hackers to exploit ter order to alter gegevens. The security processes of blockchain technology use up-to-date asymmetrical encryption methods. Thesis are based on what are referred to spil “public” and “private” keys. Public keys (a long , randomly generated series of numbers) are user addresses within the blockchain. Transactions sent via the network are saved spil belonging to this address. Private keys work similarly to passwords which enable users to access their units of account. It is therefore significant for the blockchain’s participants to keep their private keys securely so that they do not fall into the wrong mitts.

Transparency and unalterability

Approximately every ten minutes, the bitcoin blockchain is automatically checked and brought to a overeenstemming inbetween all network participants. Spil a self-verifying ecosystem of digital values, the bitcoin network cross-checks and updates itself for every transaction ter thesis ten-minute intervals. Each group of thesis transactions is referred to spil a “block”. This results ter two characteristics:

  • transparency, because the gegevens is embedded te the network spil a entire and is thus public, and
  • unalterability, because, based on current evidence, it is not possible to retroactively alter any information.

Albeit hacking the unalterability of a blockchain is theoretically possible it is unlikely te practice, particularly given that this would result te the stability of the hacked currency being brought into question spil a entire. This would likely lead to a loss of value for all currency units and therefore such an attack would not be profitable for the hacker spil any illicitly appropriated currency would be worthless.

Overeenstemming mechanisms

Overeenstemming mechanisms refer to the way te which blockchain participants reach an agreement about transactions and about each fresh state of the blockchain. Different overeenstemming mechanisms are used depending on the type of blockchain and its configuration. Such mechanisms include, among others, proof-of-work, proof-of-stake and ripple overeenstemming.

Brainy contracts

Wise contract technology permits for the digital mapping of contractual logic using pc algorithms. This means the creation of programmable contracts that are defined by program code and which are then automatically implemented and executed ter blockchains. At specific points ter time, the brainy contracts automatically check conditions which are defined ter advance. They can thus automatically determine, for example, whether a transaction will be executed or rescinded.

Brainy contracts thus permit for the rechtstreeks application of contracts. The objective of this is to reduce transaction costs and increase contractual security . It is only the programmed code of a brainy contract that carries a contractual effect. Clever contracts constitute a control rule or business rule within the blockchain’s technical protocol. For example, the engine of a car leased by clever contract might only begin if the leasing payment has bot received. All this this would require is for the blockchain to be queried.

Clever contracts permit for a significant degree of independence because the parties to an agreement do not need to rely on an intermediary. This means that they also reduce the risk of potential manipulation by a third party because the contract is managed automatically by blockchain mechanisms and not by one or more entities that might be biased or make an error. Wise contracts also permit for quicker settlement processes because tasks are automated using software code . This means that business processes can be simplified while human error, interface points and the transfer of gegevens inbetween different media types are minimised.

Different types of blockchains: public vs. private

It is necessary to differentiate inbetween private/centralised and public/decentralised blockchains.

The public blockchain treatment

Te the field of blockchain technology, the term “public” means that all network knots are given the same privileges. Numerous network knots operate the blockchain or ledger together. The most famous blockchains, Ethereum and bitcoin for example, are decentralised and distributed.

Te public or decentralised blockchains, all participants are essentially granted the same rights. This means that everyone can view the content of the blockchain, conduct transactions and contribute towards the blockchain’s security and integrity. The advantages of this treatment are its high level of security , low costs and the circumvention of potential individual errors. The main disadvantages are its limited scalability and the invariable transparency of all transactions, putting it at odds with privacy concerns. Furthermore, the participants are downright reliant on a mathematical algorithm.

The private blockchain treatment

Te private or centralised blockchains, there is normally some form of central administration or at least a limited number of participants. The knots connected to the network are assigned different rights and the transactions can only be seen by invited participants. This treatment is being used, for example, te the case of Corda from R3 CEV. The two main criticisms of centralised blockchains are that there is a greater risk of manipulation and their dependence on a central entity.

Potential applications for blockchains and the related authorisation requirements te Germany

The use of blockchain technology is not subject to an authorisation requirement te and of itself because, very first and foremost, it is simply a form of technology. Different configurations are possible and its application te different areas is conceivable. Supervisory assessments instead hinge on how the technology might be applied and which activities are to be conducted with it. Generally, when assessing a business specimen or business activities and the associated use of blockchain technology, the following questions can be expected to figure prominently ter determining whether authorisation is required:

  1. Which areas and/or which financial instruments will the business activity involve?
  2. Can the regulatory requirements for the planned business activity actually be fulfilled by using blockchain technology?
  3. Is the business activity subject to legal provisions on the prevention of money laundering, terrorist financing and other criminal offences?

Due to the broad range of potential applications of blockchain technology, it would be both difficult and inappropriate to make any general statements about notification requirements. The examples te the following section provide a non-exhaustive account of some of the potential applications of blockchain technology.

It is also still too early for any comprehensive assessment of blockchains and their potential applications because they are developing so rapidly.

Virtual currencies

Virtual currencies

Detailed information on the supervisory classification of virtual currencies can be found here:


Carrying out international transfers with blockchain technology could make near real-time payment possible and reduce transaction costs. Blockchains could be used for both conventional payment transactions and alternative payment processes. Ter such cases, the payment services provider could operate their central account on the onderstel of blockchain technology for the further processing of the sums of money being transferred by users. The payments could, for example, be transferred via the Internet after the sums have bot determined at the point of sale with a smartphone app that uses contactless payment or scannable codes.

Essentially, blockchain technology could result ter meteen interaction inbetween participants ter and beyond the area of payment transactions, thus bringing the current role of intermediaries into question (“disintermediation”).


More detailed information on the supervisory classification of alternative payment processes can be found here:

Insurance business

Property and casualty insurers could use blockchain technology to assist their claims processing. Te this area, they could, for example, automate their processes using brainy contracts, digitalise business processes for assessing insurance claims and potentially reduce the risk of insurance fraud.

Undertakings’ processing of insurance claims could be automated by drawing directly on third party gegevens sources and incorporating insurance terms and conditions into the program code of wise contracts. Digitalising business processes using blockchain technology could, among other things, help to reduce operating costs.

It is doubtful that all the potential technological applications are compatible with existing supervisory regulations and gegevens protection laws. Ter light of this, strapping standards for insurance claims gegevens could be drawn up te the future ter order to establish a suitable legal and regulatory framework.


The term “post-trade” refers to those activities carried out after a security or financial muziekinstrument has bot traded. This includes, for example, clearing , settlement and notary services spil well spil custody and asset servicing. Ter most areas, and especially with certain types of financial instruments, providing post-trade services is subject to legal provisions and requirements. Thesis requirements are summarised below for each respective area.

Especially te the area of clearing and settlement , it is necessary to obey with specific legal provisions for the prevention of money laundering, terrorist financing and other criminal offences. This means that processes voorwaarde be ter place for identifying participants and customers. Such an assessment of legitimacy is referred to spil a ” know your customer ” (KYC ) process.


Clearing is the very first step te the process following a trading transaction. It includes all activities that are necessary for the trading transaction to be successfully lodged. Clearing can be carried out either by a central counterparty (CCP ) or directly inbetween the buyer and seller. Te the case of clearing by a CCP , this party acts spil a mutual contractual fucking partner inbetween the buyer and seller ter the trading transaction.


Settlement is the step that goes after clearing . This term covers the delivery of the security or financial muziekinstrument to the buyer and the simultaneous payment of the purchase price to the seller ter accordance with the underlying trading transaction.

Te the area of settlement , blockchain technology can essentially only be used by authorised central securities depositories (CSDs) due to the legal requirements. Whether a decentralised blockchain can be used for settlements is doubtful to say the least. The central position of CSDs and their authorisation requirement spil legal persons run contrary to the decentralised nature of blockchains. Furthermore, there has bot no supervisory assessment to date due to the lack of any actual cases of application. Nonetheless, the relevant regulatory and statutory provisions are essentially technology-neutral. This means that any IT systems and applications used voorwaarde, te particular, fulfil the requirements of Article 45(1) and (Two) of the Central Securities Depositories Regulation (CSDR). Furthermore, they vereiste be compatible with existing systems.

Custody and asset servicing

Essentially the same authorisation and supervisory requirements that apply to central securities depositories under the CSDR (described above under Settlement ) also apply to custody and asset servicing and its core services. This also applies to the associated non- banking -type ancillary services set out te Section A and B of the Annex to the CSDR.

Securities trading

Compared to the individual segments and functions of post-trading, te securities trading the use of blockchain technology would most likely result ter a more ingewikkeld system. This is because it is not only the digital trading transactions that would have to be recorded ter the “main account book”. It would also be necessary to establish an automated mechanism with ongoing pricing functionality that brings together prospective buyers and sellers and which can therefore execute trading transactions at the respective price agreed upon.

Organisational management

The potential uses described above could also play a role te the field of business organisation. Ter all areas of business te which central registries, accounts or databases are used, blockchain technology could be waterput to use ter expanding the role played by digital technology. This could be te the form of registries for shares, bonds, derivatives, loans or insurance policies.

Alternatively, a number of separate companies or a company group could use blockchain technology te specific areas te order to make information available to all participants. Possible applications here include the granting of syndicated loans or the management of business transactions.

Ter principal, such blockchain technologies could be made available by a service provider. If such services were provided on the fundament of outsourcing contracts, it would be necessary to determine te advance whether the business activities or the services of the company were subject to legal requirements spil regards such outsourcing.

Decentralised autonomous organisations (DAOs) have a more far-reaching treatment to organisational management . Originally conceived of spil an proefneming, they have since developed with relative success. The idea behind DAOs is to reach business decisions spil a collective and to forego the conventional top level of management .

Conditions for the use of blockchain technology

Ter the area of banking , blockchain technology could make fresh approaches to business processes possible. The various underlying operational processes of banks necessitate the intensive cross-checking of separate books from different business units. Blockchain technology could simplify this process spil it can assist ter reducing inconsistencies. Blockchains are problematic when it comes to technical restructuring measures because once their protocols have bot set, they are difficult to switch. Ter addition, the processing speeds of blockchains are still relatively slow and usually the amount of storage space they require increases continuously spil time goes by. Nonetheless, there are indications that solutions to thesis limitations might also be found. Future development will expose the degree to which thesis challenges can be overcome.

Technical risks

Spil is the case with other innovations, the use of blockchain technology entails risks. The conditions for their use are often characterised by relatively slow settlement speeds, low settlement volumes, ingewikkeld technology and a strong dependency on the cryptographic processes being used. Such technology might also mean the involvement of a developer community that is difficult or unlikely to hold liable for any damages .

The blockchain technology itself could be subject to technical restructuring measures and, due to fresh developments for example, result ter incompatibilities with existing systems. Te addition, there is the underlying risk of hard forks if, for example, the majority of network knots back such a decision and existing agreements based on the premise that ” code is the law” are thus brought into question. Furthermore, it is relatively difficult to scale up blockchains, especially if an increase ter processing speeds is desired.

Regulatory, supervisory and legal risks

Essentially, blockchain systems function across the borders of nation states. This is particularly apparent te the case of public blockchain implementations. Here, for example, the two parties to a transaction might be located te different jurisdictions. Therefore, ter cases where discrepancies inbetween legal systems exist, this might result ter uncertainties about which legal system is applicable.

Furthermore, the legal value of blockchain transactions has not actually bot determined yet. The same can be said about the legal significance of wise contracts. Attempts to response thesis key questions would, at this point ter time, be somewhat risky. Ter the case of private blockchain implementations, it might be lighter to overcome such uncertainties because participation is quotum on the acceptance of certain legal rules.

Nevertheless, if companies are subject to BaFin’s supervision, the same regulatory framework applies to them regardless of whether they use blockchain technology or not. Te this respect, there is no confinement on blockchain technology because only the criteria set out under supervisory law serve spil the commencing point for BaFin’s supervisory work. It is therefore not the technology itself that is decisive ter answering regulatory questions, rather its specific application. Difficulties te applying supervisory law would only arise if, due to the lack of a central entity, its enforcement wasgoed hindered or unlikely because there wasgoed no addressee.

Economic risks

With blockchains, it is essentially unlikely to undo a transaction once it has bot executed. Confirming transactions carried out by blockchain can be relatively slow and participants are left waiting for a relatively long period – compared to certain conventional processes – before their transactions receive final confirmation. Blockchains with a proof-of-work overeenstemming mechanism can also be relatively costly to maintain and operating them can require substantial resources.

Furthermore, it is still unclear what level of acceptance blockchains will achieve among market participants.

Potential future developments

While this list is neither finish strafgevangenis conclusive, the potential for added value suggested by blockchains for companies supervised by BaFin will, based on current assessments, be found te the following areas:

  • Simplification and automation of previously manual business processes
  • Enlargened efficiency te regulating the market with almost real-time monitoring of financial market participants
  • Diminished risk of non-payment by counterparties because contracts are executed te a secure and automated environment
  • Minimisation of potential fraud

Key questions on the use of blockchains

Blockchain technology promises a broad range of potential uses. Spil is the case with other kinds of gegevens processing technology, its use nonetheless poses key questions about IT security . Furthermore, the following questions should be answered before considering the use a blockchain solution:

  • Will the network have a puny number of participants?
  • Is there a sufficient level of confidence te the network’s other participants?
  • Will a relatively large amount of gegevens be saved for the transactions to be lodged? Are the transaction volumes high with regard to the absolute number of transactions or their number vanaf unit of time?
  • Are the business transactions relatively ingewikkeld and are they subject to confidentiality or gegevens protection requirements?
  • Are perimeter defences or the physical separation of gegevens necessary?
  • Does the exchange of gegevens require a large number of interfaces with other networks or older systems?
  • Is a centralised entity or bod required te order to resolve conflicts?
  • Should only one centralised entity be able to validate transactions?
  • Will it be necessary to be able to alter gegevens retroactively?

Thesis questions are provided merely spil suggestions. By no means can they substitute the type of individual analysis required before any technology is used.

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