The Bank of England (BoE), the central bank of the United Kingdom has sought a digital currency of its own. A centralized, completely central-bank controlled ...
The Bank of England (BoE), the central bank of the United Kingdom has sought a digital currency of its own. A centralized, completely central-bank controlled bitcoin clone in the form of a cryptocurrency called RSCoin.
While financial institutions such as securities exchanges are openly favoring and investing in blockchain technology, central banks are going a step further in borrowing from bitcoin technology. Several central banks, including the recent prominent example of the People’s Bank of China, have revealed plans of developing their own digital currency.
A report in the MIT Technology Review today has revealed that the Bank of England had asked researchers to design a cryptographically-secured digital currency, similar to bitcoin. The currency system, RSCoin, was developed by two researchers at the University College in London, at the direct suggestion of UK’s central bank, BoE. The researchers who developed RSCoin are Sarah Meiklejohn and George Danezis.
While RSCoin also uses cryptography –making it tamper-proof and resistant to counterfeiting – the digital ledger used by the newly developed cryptocurrency is completely held within the confines of the central bank.
The report notes that RSCoin’s system will be accessible by a specific encryption key that will be in possession of the central bank.
Furthermore, a number of third-party collectives like commercial banks will be chosen by the central bank to partake in the central ledger, Meiklejohn revealed. The commercial banks will help the central banks process new transactions as well as submitting them to be included in the central bank-owned ledger. The developer also added that RSCoin was different to bitcoin due to its centralized design. She opined that unlike bitcoin, RSCoin will be able to handle a very large number of transactions.
In a paper titled Centrally Banked Cryptocurrencies [PDF], the developers state:
We introduce RSCoin, a cryptocurrency framework in which central banks maintain complete control over 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.
As things stand, RSCoin has been tested using 30 different computers inside a cloud computing platform provided by Amazon. Meiklejohn also revealed that she is in discussions with the Bank of England about further research about the RSCoin and how the cryptocurrency might be implemented in reality.
The developer also claimed that a central bank might find the idea of a digital idea attractive because of the inherent ledger that records every transaction. In a possible nod toward the working of bitcoin, she also stated that RSCoin’s ledger could be published by a central bank, publicly. That is, if the bank chooses to go with transparency. She noted that the design of RSCoin would also mean that it would be possible for the controlling central bank to make all transactions partially or even fully anonymous.
Featured image from Shutterstock.