The central bank of UK, the Bank of England (BOE) is developing a Proof-of-Concept (PoC) that will allow them to maintain privacy while having a regulatory oversight of the data on distributed ledger technology (DLT), which is still in the exploration stage.
BOE developing a proof-of-concept for a regulatory overview of DLT data
The UK’s central bank, The Bank of England is working on establishing a proof-of-concept (PoC) in order to study how exactly to maintain privacy over a network that is based on distributed ledger system while having a regulatory overview of the data.
The Bank of England has published a paper in which it is “exploring how distributed ledgers can be configured to enable privacy amongst participants whilst keeping data shared across a network.”
This study is conducted in partnership with Chain, which is a blockchain startup that basically works on developing infrastructure protocols.
Right now, BOE is working on building an academic understanding instead of having a practical solution, hence, they didn’t develop a testable technology.
The Proof-of-Concept provides us with an idea of what exactly the UK central bank is trying to go on with here which is to advance the development of DLT i.e. distributed ledger technology for the existing business but without hiding the transactions from the authorities:
“The central authority would have the ability to issue new units of the assets as well as retire units, and grant access to participants to use the ledger, and the regulatory authority would have the ability to view all transactions.”
A nascent technology: Objectives & issues
The key objectives with which the bank went into this study was to first explore “how DLT based systems could be configured to ensure that no party (except for the regulator) was able to infer details about transactions which they were not counterparty” and then to “understand 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 is released just a few days after BOE revealed its plan to integrate the new PoC into its real-time gross settlement (RTGS) and mentioned:
“Although the Bank has concluded that distributed ledger technology (DLT) is not yet sufficiently mature to provide the core for the next generation of RTGS, it places a high priority on ensuring that the new service is capable of interfacing with DLT as and when it is developed in the wider sterling markets.”
Though the institution is making a move towards the DLT systems, the central bank says the main difficulty with this is scalability. The bank believes that it is theoretically possible but the technology is still in the very early stage that would require the exploration of scalability, speed, and risks associated with it.
Do you think BOE will be able to achieve privacy while having regulatory oversight over data on distributed ledger technology?