Bank of England considers issuing a centralized digital currency different from Bitcoin

The bitcoin digital currency was designed to be independent of government — a feature that has limited its mainstream appeal. Now researchers have created a bitcoin-like system that allows a central bank, the Federal Reserve, to exercise control, making it more practical.

The system, called RSCoin, was designed by researchers Sarah Meiklejohn and George Danezis at University College London with advice from the Bank of England, which began researching the idea of ​​issuing a digital currency earlier this year. Ben Broadbent, deputy governor of the Bank of England, said this month that the use of digital currencies could make retail payments more efficient and the entire financial system more resilient. Software that enables instant transfers of digital currencies should also make all kinds of transactions faster and less expensive.

Like Bitcoin, RSCoin uses cryptography to create a digital currency that cannot be counterfeited. In both RSCoin and Bitcoin systems, transactions are verified by adding them to a digital ledger that records all currency flows.

However, the Bitcoin ledger is maintained by computers around the world, operated by a variety of people and companies that are not subject to any central authority. The Bitcoin code also stipulates that there can be no more than 21 million Bitcoins (which have been increasing over time, with about 15 million currently in circulation).

RSCoin’s ledger is entirely in the hands of the central bank, which retains a special cryptographic key that can be used to control the money supply, for example, to implement policies such as quantitative easing, which the Federal Reserve and other central banks implemented after the 2008 financial crisis.

The central bank selects a small number of third parties to process new transactions and enter them into the central ledger. Meiklejohn said it would make sense for large commercial banks to play this role. Unlike Bitcoin, RSCoin's centralized design means it can handle a large number of transactions.

Bhagwan Chowdhry, a finance professor at the University of California, Los Angeles (UCLA), said that by adopting the RSCoin system, central banks can make the financial system better serve the people. "The benefits of digital currency are vast and boundless."

Chowdhry said:

"If money transfers can be made easier, business will run more smoothly and more people will have access to basic financial services."

If digital currency is integrated with the existing financial system, it will be accepted by more people.

“While there will be a segment of liberal people who don’t like centralized solutions, most consumers will be able to adapt because they view centralized digital currencies as safe and familiar.”

Indeed, one reason central banks like digital currencies is that digital currency ledgers provide a detailed record of financial activity. Meiklejohn said that for transparency reasons, banks could choose to publish the ledger. However, transactions could also be partially or fully anonymous.

RSCoin has so far been tested using 30 different computers on Amazon’s cloud computing platform, and Meiklejohn said she is now in discussions with the Bank of England to do more research on how RSCoin could be implemented in practice.

Meiklejohn and the Bank of England are very interested in what a system like RSCoin could do, for example, how it could help banks and financial institutions move traditional assets around, and how it could automate certain transactions, such as futures contracts. Many startups, as well as large computer companies, including IBM, are also working on the idea.

A paper on RSCoin was presented at the San Diego Network and Distributed Systems Security Symposium last month.
Original article: https://www.technologyreview.com/s/600980/a-bitcoin-style-currency-for-central-banks/
By Tom Simonite
Compiled by: Kyle
Source (translation): Babbitt Information (http://www.8btc.com/bitcoin-style-currency-for-central-banks)