Bank of England & UCL working on bitcoin alternative RSCoin

The Bank of England has partnered with UCL Computer Science to create the centrally controlled digital currency RSCoin, as reports in iT news today.

The UCL researchers involved in the project, Dr Sarah Meiklejohn and Dr George Danezis, published a paper last year at the request of the Bank of England in which they presented a framework on how a central bank can maintain monetary policy over the RSCoin without sacrificing transparency. SiliconAngle explained RSCoin would use the blockchain just like bitcoin, but that the Bank of England would hold an encryption key “that could be used to control the supply of the digital currency available.” The Bank of England is interested in digital currencies for its potential.

RSCoin has already been tested with 30 different computers on Amazon’s cloud computing platform.

The researchers also proposed a new 2PC-based consensus mechanism and measured its performance, showing that “centralization of some authority allows for a more scalable system to prevent double spending that completely avoids the wasteful hashing required in proof-of-work-based systems.” Indeed, it seems that scalability is one of the biggest challenges facing bitcoin right now. It News compared bitcoin’s handle rate of seven transactions per second to Visa’s max rate of 7000 per second.

Scalability doesn’t have to be restricted to transaction times. The researchers also explained in the paper how other central governments could potentially use their RSCoin framework to develop their own centralized digital currencies, though they caution this could lead to the same issues of “infrastructure replication” that has happened with altcoins that based their frameworks on bitcoin (“[B]ugs are replicated across codebases and compatibility across different altcoins is artificially low.”).

Instead, the paper proposes that central banks use the same framework to build their digital currencies, though separate blockchains would likely be maintained.

“While this allows the currencies generated by different central banks to achieve some notion of interoperability, we still expect that different blockchains will be kept separate; i.e., a particular central bank does not — and should not — have to keep track of all transactions that are denominated in the currency of another central bank. (Mintettes, however, may choose to validate transactions for any number of central banks, depending on their business interests.)”

The Bank of England’s announcement follows a growing trend of central banks, including those of Australia and China, that are expressing interest in blockchain technology and introducing digital currencies.