Probably the most visible application of blockchains right now isthe virtual currency Bitcoin – which has often hit the news for rapid gains in value – but in fact there are over 2,000 other tokens and currencies based on distributed, cryptographical technology.
Collectively they are known as cryptocoins or cryptocurrency, and each one claims to fill a role or solve a problem in some way, better than other solutions which have come before it. The unifying factor among them all is the concept of blockchain, and its ability to establish identity and ownership, record transactions and enforce “smart contracts”.
source: https://www.forbes.com/sites/bernardmarr/2017/09/15/blockchain-bitcoin-cryptocurrency-and-icos-all-you-need-to-know-in-10-minutes/#7f571dde6c55
Over the past decade the financial services industry has been disrupted by a range of new technologies. This has included the launch of new, private, digital currencies such as Bitcoin. In this environment, central banks are considering how they can take advantage of these new technologies to help deliver their core functions.
Paper:
https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletins/2018/2018jun81-07.pdf
the barriers really are not technical, they're psychological. public-key infrastructure (PKI) has been around for decades, yet has never made mainstream (perceived as "too complicated"). blockchain arrives, and it's the first time in human history that 3rd party arbitration, exchange and contracts may be made mathematically inviolate and, crucially, no longer dependent on centralised control.
think about that for a second.
so the question (as rephrased) "can we trust a CENTRAL bank with a DISTRIBUTED mathematically inviolate process?" is effectively an oxymoron.
the reason is very simple: whatever they come up with is almost certainly guaranteed to involve CENTRALISED control of some kind. and, more importantly, anything that they do which can be trusted will also provide far more transparency into their operations (including fraud, which we know is massive and systematic) than they will ever be willing to admit.
so i do not believe that central banks can ever successfully deploy public (customer) facing blockchain. they may be able to use it internally, they may be able to use it inter-bank, however as far as public-facing is concerned, they're not trusted now, so anything developed by central banks will also not be trusted. even if it was the most perfect system ever developed, the very fact that it came from a CENTRAL authority would automatically discredit them in the eyes of their customers.
now, if on the other hand, a system was developed outside of their control and they adopted and accepted it, that would be a different matter. such systems already exist: they're named "Bitcoin", "Monero"...
There are no major technical challenges IMO, but there are major political, business, and socio-cultural changeless.
Blockchains can be designed to hide the beneficiary, Govts will never endorse such a system for regulated banks. Any acceptable system must therefore trace back to a verified identity, person or corporate (and the associated audit trail). Centralized identity, decentralized clearing, a bit like Internet's DNS. Technology must also evolve to support thousands of transactions per second. Once these two hurdles are cleared blockchains can have a great future IMO.
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