The Bank of England (BoE), Britain’s Central Bank, published a Proof-of-Concept (PoC) which analyzes the possibilities of allowing users to share data in a safe and secure network. The bank partnered with blockchain infrastructure provider, Chain, to examine the problem and work on the possible solutions.
While the PoC was not implemented practically, both companies tried to answer questions that arose from developing a distributed network system. For instance, allowing participants from all over the world to share a blockchain network raises privacy concerns. In such cases, even with the use of cryptography, people may find ways to access transactions of other users. The Bank of England took a central authority and a regulator as an example. If they were exchanging data and transferring assets, transactions would have to be concealed from other participants. Additionally, it would have to be ensured that people in the “consensus process [do] not have full visibility of transaction details.”
Using encryption techniques doesn’t guarantee complete security from attackers. One way to avoid it would include creating a partially distributed network where “data is only shared between those participants directly involved in each transaction.” However, this would reduce resilience and prove to work against the idea of distributed systems.
The Bank of England reported that the ideal case, increasing privacy among users and “keeping data shared across a network”, is still in the early stages, but it is still “theoretically possible”.
“The trade-offs would still need to be further explored, especially with respect to scalability, speed of transaction processing and risks around the security of the cryptographic techniques employed.”
BoE launched a program called “Fintech Accelerator” in 2016 to find solutions to problems faced by central banks by teaming up with fintech companies. This PoC falls among the 12 others published by the bank on its website. BoE has previously partnered with companies including Ripple, Enforcd, MindBridge Analytics Inc, PwC and BitSight. Unlike blockchain initiatives, cryptocurrencies are not welcomed by the bank just yet. Governor of BoE, Mark Carney, said at the Scottish Economics conference that cryptocurrencies “are failing” as money.