The Bank of England has released a document announcing its partnership with San Francisco-based blockchain technology company Chain, to develop a Proof-of-Concept (PoC) to explore how it could maintain inter-participant privacy while keeping data shared on the network.
Participant Privacy with Regulatory Oversight
Blockchain startup Chain is developing a cryptographic ledger that supports innovative financial products. According to the Bank of England, the partnership has helped the bank to better comprehend how advanced cryptography can entrench privacy using blockchain technology.
The primary objective of the PoC endeavor was to explore how a system underpinned by digital ledger technology can ensure that transactions between parties cannot be viewed by others on the network, while at the same time allowing the regulatory authority to view all transactions. The objective was to develop an understanding of “how the choice of privacy solution affected the performance of the system as well as the trade-offs, risks, and challenges this presents.”
The paper outlined a scenario in which a central authority, regulator, and various participants are part of the Digital Ledger-based system. The scenario takes into consideration the transfer of a “fictional asset”. In the scenario, the central authority will possess the ability to issue new units of assets and also nullify them.
It will also have the power to give access approval to participants in the network. Meanwhile, the regulator would oversee and control all assets on the network. In order to penetrate the system, a hacker would have to decrypt each transaction, a near impossible task.
The Bank of England – a Pro-blockchain Central Bank
Despite infamously declaring bitcoin as a failure, the released document highlighted that the Bank of England wants to “configure a distributed ledger system in such a way that transactions remain private whilst keeping all data shared across the network, and at the same time maintaining a regulatory view of all transactions.”
The ability to limit data access to regulators appears theoretically possible, but for practical implementation “the trade-offs would still need to be further explored, especially with respect to scalability, speed of transaction processing, and risks … (relating to) … the security of the cryptographic techniques employed”.
Recently, the Bank of England also engaged in a PoC to explore how a distributed ledger technology settlement mode could enhance their Real Time Gross Settlement (RTGS) service. The Central Bank of England has been at the forefront of the adoption of blockchain technology. It was also one of the first central banks to partner with San Francisco-based Ripple Labs, to test cross-border payments.
Will other central banks follow suit when it comes to embracing blockchain technology? Share your views in the comments section.
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