that Andrew G. Haldane, chief economist at the Bank of England
(BoE), hinted at the possibility that the U.K. government might
issue a digital currency.
"What I think is now reasonably clear is that the distributed
payment technology embodied in Bitcoin has real potential," said
Haldane. "Bitcoin's 'blockchain' technology appears to offer an
imaginative solution to that distributed trust problem. That is why
work on central bank-issued digital currencies forms a core part of
the [BoE]'s current research agenda."
Haldane left as open questions whether blockchain technology
could support central bank-issued digital currency, and whether the
public would accept it as a substitute for paper currency.
Earlier this month,
Ben Broadbent, BoE's deputy governor, said
that distributed ledger technology could make retail payments more
efficient and the financial system as a whole more resilient.
"The main point here is that the important innovation in bitcoin
isn't the alternative unit of account - it seems very unlikely
that, to any significant extent, we'll ever be paying for things in
bitcoins, rather than pounds, dollars or euros - but its settlement
technology, the so-called 'distributed ledger,'" he said.
Broadbent confirmed that the BoE is actively pursuing
distributed ledger research, and added that a central bank digital
currency would involve putting reserve deposits on a distributed
"The issue of digital currencies forms an important part of our
One Bank Research Agenda," concluded Broadbent. "In publishing the
Agenda a year ago, we asked for help, hoping to encourage 'the
wider academic community' to think about the big policy
One Bank Research Agenda
paper noted that blockchain fintech could reshape the financial
industry and called for further research to devise a system that
could use distributed ledger technology without compromising a
central bank's ability to control its currency.
Now, British researchers have invented a Bitcoin-like system
that could make digital cash more practical by allowing a central
bank such as the Federal Reserve to control it,
MIT Technology Review
University College London researchers
presented a paper titled "
Centrally Banked Cryptocurrencies
" at the Network & Distributed System Security Symposium in San
Diego last month. The paper, which acknowledges contributions from
the BoE, introduces RSCoin, "a cryptocurrency framework that
decouples the generation of the monetary supply from the
maintenance of the transaction ledger."
"Our design decisions were largely motivated by the desire to
create a more scalable cryptocurrency, but were also inspired by
the research agenda of the Bank of England, and the question of
'whether central banks should themselves make use of such
technology to issue digital currencies,'" note the researchers.
"Indeed, as Bitcoin becomes increasingly widespread, we expect that
this will be a question of interest to many central banks around
RSCoin would be a closed, "permissioned" blockchain offering the
advantages of digital currencies - fast and cheap transactions
permanently recorded in a shared distributed ledger - without the
troublesome openness of the Bitcoin network where anyone can be an
anonymous node on the network. Instead of anonymous miners, only
the central bank and vetted financial operators would be allowed to
validate RSCoin transactions.
Permissioned blockchains are supported by, among others,
Accenture and Digital Asset Holdings CEO Blythe
, but others, including legendary cryptographer Nick Szabo,
that financial operators should, instead, embrace the crowd-sourced
power and resiliency of permissionless blockchains like
RSCoin would be controlled by the central bank, which would also
retain a special encryption key that could be used to control the
money supply - as it happens, for example, in Quantitative Easing
As reported by
MIT Technology Review
, Meiklejohn says it would make sense for large commercial banks to
process and validate transactions in the RSCoin network. Meiklejohn
added that RSCoin's centralized design would permit a high
transaction throughput, unlike Bitcoin. In fact,
a recent study
shows that, in the current design of Bitcoin Core, there is a
fundamental conflict between throughput and decentralization.
Incremental improvements could permit a throughput of about 27
transactions per second in the Bitcoin network, but "more
aggressive scaling will, in the longer term, require fundamental
"[RSCoin] provides the control over monetary policy that
entities such as central banks expect to retain," conclude Danezis
and Meiklejohn. "By constructing a blockchain-based approach that
makes relatively minimal alterations to the design of successful
cryptocurrencies such as Bitcoin, we have demonstrated that this
centralization can be achieved while still maintaining the
transparency guarantees that have made (fully) decentralized
cryptocurrencies so attractive."
RSCoin currently is only a research proposal, but it's
interesting to speculate on whether it could become an official
project of the BoE, as previous - veiled but clear - statements by
the central bank seems to indicate.