Fed and MIT research discloses that distributed ledger tech has downsides 

  • The research sought to test the hypothetical general purpose of the Central Bank Digital Currency (CBDC).
  • Using two models, the first one processed transactions through the “ordering server” distributed ledger technology according to the report.

Recently, the Federal Reserve Bank of Boston and the Digital Currency Initiative at the Massachusetts Institute of Technology conducted research dubbed “Project Hamilton”. The research sought to test the hypothetical general purpose of the Central Bank Digital Currency (CBDC). With the use of two potential models, the first one processed transactions through “ordering server” distributed ledger technology according to the report. This ensures that the validated transactions are organized into blocks to create an ordered transaction history. 

The second model also processed transactions in parallel on multiple computers. Interestingly, the researchers were able to use the first model to complete 99 percent of transactions in less than two seconds, with the majority of them processed under 0.7 seconds. However, the single actor running the whole process resulted in the ordering server encountering issues. 

For example, it creates performance bottlenecks, and requires the central transaction processor to maintain transaction history, which one of our designs does not, resulting in significantly improved transaction throughput scalability properties.

This led to the conclusion that distributed ledger architecture has downsides. Also, distributed ledger performing under the jurisdiction of different actors is unnecessary according to the researchers. 

The second architecture also demonstrated a throughput of 1.7 million transactions per second. Interestingly, 99 percent of the transactions were completed in under 0.5 seconds. 

Lawmakers divided on the need for CBDC

According to Boston Fed Executive Vice President and Interim Chief Operating Officer Jim Cunha, it is important for changemakers to understand what challenges remain instead of only focusing on understanding how emerging and existing technologies could support potential CBDC. 

This collaboration between MIT and our technologists has created a scalable CBDC research model that allows us to learn more about these technologies and the choices that should be considered when designing a CBDC.

Project Hamilton was launched in 2020 and was meant to explore the use of existing and new technologies to create and also test a hypothetical digital currency platform. According to Neha Narula, director of digital currency initiatives at MIT, there are many more challenges. 

There are still many remaining challenges in determining whether or how to adopt a central bank payment system for the United States.

For some time now, Fed lawmakers and policymakers have been divided on the need for CBDC. While some believe that it can improve the financial system, others think it will rather destroy it. As many stakeholders have agreed that it could improve financial inclusion, others think the cost involved will outweigh its benefits. 

The researchers have been said to consider alternative designs and focus more on programmability and security. They will also seek to look at ways to balance the concerns of compliance and privacy issues in the next phase. 

 

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John's a cryptocurrency and blockchain writer and researcher with years of experience. He has a lot of interest in emerging startups, tokens, and the invisible forces of demand and supply. He holds a Bachelor's degree in Geography and Economics. My Email: (kojokumijohn@gmail.com)

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