The Bank of England is working with researchers at University College London to design a Bitcoin clone of its own that can be centrally controlled.
A recent MIT Technology report claimed that the UK’s central bank had reached out to university researchers to help it create a cryptographically secure digital currency. The resulting system has now been revealed, and is named RSCoin.
The RSCoin system, developed by Sarah Meiklejohn and George Danezis, employs cryptography to obviate counterfeiting and tampering. Unlike other mechanisms, the digital ledger used by the new cryptocurrency is handled exclusively by a central body. The report explained that RSCoin will only be made accessible to central bank users in possession of a specific encryption key.
Meiklejohn added that eventually third-party institutions (i.e. commercial banks) would be selected by the central bank to join the ledger. She detailed that these collectives would help the central bank process new transactions and submit them for inclusion in the central bank-owned ledger. The developer also noted that RSCoin differs notably from Bitcoin due to its centralised design and ability to handle huge volumes of transactions.
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In a paper titled Centrally Banked Cryptocurrencies [PDF], the researchers state: ‘We introduce RSCoin, a cryptocurrency framework in which central banks maintain complete control over the monetary supply, but rely on a distributed set of authorities, or mintettes, to prevent double-spending. While monetary policy is centralized, RSCoin still provides strong transparency and auditability guarantees.’
Referring to transparency of funds, Meiklejohn explained that an RSCoin ledger could be published publicly by a central bank. She added that the system’s design would also allow a central bank to make transactions entirely, or partially, anonymous.
So far RSCoin has been trialled across 30 different computers, all operating within an Amazon Web Services (AWS) cloud computing environment. The team is continuing its discussions with the Bank of England about further research opportunities and a real-world implementation of the digital currency.
While financial groups have shown interest and are even actively investing in blockchain and bitcoin technologies, central banks and other organisations around the world are considering creating their own Bitcoin-style currencies. Recently the People’s Bank of China announced its plans to issue its own digital currency and build an entirely new financial infrastructure for the nation. The hope would be to reduce the cost of issuing and circulating traditional currencies, improve the convenience and transparency of economic transactions, and reduce money laundering, tax evasion and other criminal acts. The central bank also cited the opportunity to enhance its control over money supply and currency circulation to better support economic and social development.
IBM announced at the end of last year that it too is developing a new blockchain financial transaction infrastructure called Open Ledger, to be used by banking giants including J.P. Morgan, Wells Fargo and the London Stock Exchange.
Cryptocurrencies were originally designed as automatically global and decentralised networks facilitating alternate corporate and government-backed implementations, and capable of mandating a certain level of interoperability in the future. This discussion would also entangle considerations around international standardisation, data privacy, security, as well as points of trust and failure.