Deutsche Bank sees The DAO incident as a timely reminder of the importance of testing products before they are unleashed.

In 2014 Deutsche Bank launched a series of innovation labs in collaboration with IBM, Microsoft and the Indian outsourcing company HCL. The aim was to improve the bank’s digital banking services. Deutsche Bank’s Blockchain project is now out of the ‘proof of concept’ stage.

Deutsche Bank’s labs are based in Berlin, London and Palo Alto. Their Palo Alto lab’s aim is to evaluate emerging technologies from Silicon Valley and apply them to enhance their products. The three innovation labs termed as ‘Deutsche Bank Labs’ are a part of the Bank’s Strategy 2020 and Deutsche Bank has earmarked the sum of €1 billion on such initiatives for the next five years.

Why Bitcoin matters to Deutsche Bank

Deutsche Bank is not unique in utilising Blockchain as a technology as many other banks have been doing so now for a while whilst others are in the process of exploring it.

The bank’s Chief Digital Officer Edward Budd has this to say about Blockchain in a bank’s press release,

“Deutsche Bank is running a portfolio of activities for Blockchain/distributed ledger technology across the bank. Some of these innovative activities are driven internally and facilitated by the Deutsche Bank Innovation Labs. In other areas where we cannot - or would not - look to test on our own, we collaborate with industry partners such as the market consortium DLG R3.”

The DAO incident was a wakeup call

Regarding the DAO incident, Deutsche Bank told Cointelegraph in an e-mailed answer,

“To those of us focused on getting this out of the lab and into production use in markets, it has served as a good and timely reminder on the importance of clear governance/standards and production assurance. These are mandatory elements for a regulated entity to consider when putting any technology into production either individually or as part of a market scheme. They will be the core pillars of the schemes needed to run the private/permissioned blockchains logical for transaction banking product lines.”

However, the Bank was also categorical in making it clear that this incident would not cast a shadow on the future Blockchain plans which are being run across Deutsche Bank. They are clear that Blockchain for them is not an ‘overnight revolution’.

A Step-by-Step Approach

The bank is taking a slow and steady approach when it comes to Blockchain adoption. It aims to put some commercially viable implementations in place by the end of 2017 and into 2018. Edward Budd says that quality assurance, security, legal requirements and governance should be the focuses before Blockchain technology can be applied to regulated financial markets including transaction banking.

According to Budd,

“It may take another 5-10 years before distributed ledger technology becomes truly mainstream. That will take us to 2027, the year the World Economic Forum predicted that 10% of global GDP will be stored on blockchains.”

Security Matters but Bitcoin proves a point

Security remains a concern for most banking operations and when you operate in a highly regulated environment, it is obvious that special attention needs to be paid to securing client information and transactions.

Deutsche Bank told Cointelegraph:

“There are many varieties of Blockchain/distributed ledgers being looked at but, as with any technology, it is more ‘how’ the technology is deployed and the extent to which it has been tested that determines how secure it is. To date, the Bitcoin protocol, the longest running version of this, has proven to be secure. However, risk is never completely eliminated, as layers of complexity are added in the form of smart contracts. We are also adding new areas for which security needs to be applied, including  the level to which this needs to be tested, needs to increase.”