A theoretical study of the central bank digital currency (CBDC) in the United States found that the structure of the distributed ledger has “deficiencies.”
The Federal Reserve Bank of Boston and the MIT Digital Currency Initiative released the results of their preliminary research into the CBDC on February 3.
A research project called the Hamilton Project has tested a “virtual generic CBD” using two potential models.
Previous transactions processed using Distributed Ledger Technology (DLT) “order server” that organizes verified transactions into blocks to create an orderly record of transactions.
The researchers were able to use this architecture to complete more than 99% of transactions in less than two seconds, and most transactions in less than 0.7 seconds.
However, the request server caused a number of problems due to the fact that it was under the control of a single actor. The researchers concluded that “the structure of the distributed ledger has flaws.”
“For example, this creates performance bottlenecks and requires the central transaction processor to maintain a transaction history, which none of our projects does, which greatly improves the scalability characteristics of transaction throughput.”
They added that despite the use of blockchain ideas, there was no need for a “distributed ledger operating within the jurisdiction of the various entities.”
Another architecture processed transactions in parallel on multiple computers rather than relying on a single request server to prevent double consumption. The researchers wrote that while this “results in superior scalability,” it does not “embed an ordered history of all transactions.”
It showed a transfer rate of 1.7 million transactions per second, with 99% of transactions finally completing in less than one second, and most transactions completed in less than half a second.
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Project Hamilton was first announced in 2020 to explore the use of existing and new technologies to build and test a virtual cryptocurrency platform. The code is the first contribution to OpenCBDC, a project supported by the Massachusetts Institute of Technology that will serve as a platform for further CBDC research.
Boston Federal Reserve Executive Vice President and Interim CEO Jim Cunha said the project demonstrates that it is “critical” for change planners to understand not only how new technologies can support potential CBD, but the remaining challenges.
“This collaboration between MIT and our technologists has created a scalable research model for CBD that allows us to learn more about these technologies and the options to consider when developing CBD.”
“There are still many challenges ahead in deciding whether or not to implement a US central bank payment system,” said Neha Narula, director of the Digital Currency Initiative at the Massachusetts Institute of Technology.