On 20th April, the governor of the US Federal Reserve, Christopher Waller shared his views on tokenization, smart contracts, and blockchain technology in the current financial world. Waller looked very optimistic about the use of tokenization and smart contracts. According to the Fed governor, it will increase the efficiency of traditional financial transactions.
While delivering a speech on ” Innovation and the Future of Finance” at the Cryptocurrency and the Future of Global Finance event, Waller pointed out the benefits of smart contracts to improve the quality of traditional financial systems. According to Christopher Waller, companies have been on trial with blockchain technology and smart contracts to perform foreign exchange trades. The aim of experimenting is to enhance the efficiency of the current system.
Additionally, Waller has provided a detailed explanation of the role of tokenized assets to facilitate transactions. Traditional assets must first be “tokenized” for a blockchain to be utilized to facilitate transactions involving them, says Christopher Waller. Tokenization refers to the process of representing an asset on a blockchain in a way that makes it the blockchain’s ledger of record.
There are many advantages for a financial institution to adopt blockchain over traditional financial transactions. The blockchain can offer quick or even real-time transfers on a 24/7/365 basis. This allows parties precise management over settlement times. Additionally, it can enhance efficiencies and reduce the risks related to liquidity. However, Waller also made it clear that blockchain is not the only method that provides these benefits, the Federal Reserve’s FedNow service which is ready to offer its services in July can offer a safe and secure environment on a real-time basis.
In the era of digitization where countries are eagerly looking for new technologies to reduce vulnerability risks, blockchain technology could be a game changer. The other benefits of tokenized assets are that they are programmable and consist of “smart contracts” facilities. For those who are not aware, smart contracts is a computer program stored on the blockchain. It can be programmed to execute predetermined actions once certain conditions get fulfilled. Christopher Waller called smart contracts “atomic settlements”.
Waller’s speech was a push for tokenization but similarly, he warned about the repercussions that can arise due to this technology. Additionally, he cautioned particularly the cyber thefts that could hamper innovative technologies. It seems he advocated tokenization and smart contracts with the introduction of risks associated with them.