Wednesday, September 13, 2017

Questions the Bank of England Is Asking: "Beyond blockchain: what are the technology requirements for a Central Bank Digital Currency?"

Or is it "are" asking?

From Bank Underground:
What type of technology would you use if you wanted to create a central bank digital currency (CBDC) i.e. a national currency denominated, electronic, liability of the central bank? It is often assumed that blockchain, or distributed ledger technology (DLT), would be required; but although this could have some benefits (as well as challenges), it may not be necessary. It could be sensible to approach this issue the same way you would any IT systems development problem – starting with an analysis of requirements, before thinking about the solution that best meets these.

The subject of CBDC also raises a number of significant economic questions, but the focus of this post is primarily on the technological considerations. For the purpose of this post, I consider a universally accessible CBDC which is widely used by individuals as well as businesses – this forces the consideration of some challenging technological features. A CBDC which is used by individuals (i.e. a retail CBDC) could also be used by financial institutions and institutional investors (i.e. wholesale), but for these requirements I will focus predominantly on the retail aspects. The requirements I outline are technology agnostic; they should enable the consideration of both centralised and DLT-based solutions to a CBDC.

The table below summarises some of the likely technology requirements for a CBDC. These are discussed in greater detail below.



Resilience High operational availability (>99.999%), 24/7/365
Security Secure against cyber attacks
Scalability Potential for several thousand transactions per second
Transaction processing Near-instantaneous, real-time, with settlement finality
Confidentiality Private, but not anonymous
Interoperability Interoperable with existing systems and other CBDCs
Innovation  Enable the overlay of innovative features/services
Future proofing Ability to upgrade and enhance, without impacting service

Like current financial infrastructure, a widely used CBDC would likely be considered critical national infrastructure. Any unexpected downtime could have a major impact on the functioning of the financial system and on the real economy. It would need to be operational across the country, 24 hours a day, 365 days a year. This would require extraordinary levels of resilience. A minimum operational availability of 99.999% might not be unreasonable for the core settlement engine – equating to a downtime of approximately 5 minutes during a year....MORE