Governments and central banks world over are starting to recognize the potential of blockchain and distributed ledger technologies and a recent report from the Bank of Korea suggests that it is the latest addition to this list.



The report, penned by Dong sup Kim of the bank's Payment Systems Research Team, recommends the central bank to monitor developments going on in the blockchain space and undertake research into the technology, CoinDesk reported.



The paper explores the basic concepts of cryptocurrencies and distributed ledgers as well as its implications on policies and financial stability.



According to the report, digital currencies (bitcoin, litecoin, Dash etc) are unlikely to gain widespread acceptance due to various reasons such as high price volatility, technical limitations, the risk of hacking or the loss of private keys by end-users, its potential to be used in illegal activities (money laundering, tax evasion etc) and much more. Moreover, regulatory uncertainty also hampers the adoption of digital currencies.



"[I]t is not very likely that digital currencies will grow to such level as to replace or pose a serious threat to legal tender or other major payment instruments”, CoinDesk quoted the report.



However, the report sees potential in the blockchain and distributed ledger technologies. It says that the technology can improve the efficiency, transparency, security and resilience of the conventional systems and has the potential to disrupt the financial markets.



It further noted that there are certain limitations to the technology that obstruct its use by financial institutions. It urges global financial institutions, startup companies and government branches to collaborate.



The paper calls on the financial sector, industry and academia to actively promote the technology’s in-depth research. It recommends that the central bank to closely monitor the development of distributed ledger technology by both domestic and foreign financial institutions and startups.



It added that while government and regulator have to monitor this space due to potential negative impacts and risks, they should create a "comprehensive and flexible regulatory system", so that it does not hamper innovation.