MIT experts test technical research for a fictional central bank digital

In collaboration with a team from the Federal Reserve Bank of Boston, MIT experts have begun the design and testing of technical research that could lead to further investigations of central bank digital currencies (CBDCs) in the US.

The effort, known as Project Hamilton, is in an exploratory phase, and the research is not intended as a pilot or for public deployment. Instead, the researchers have explored two different methods that can be used to process transactions, thus indicating the technical feasibility of a potential CBDC model. In a process involving significant design flexibility, the MIT group tested factors such as transaction volume and speed, and the flexibility of the system in general, among other requirements for a viable digital currency.

Neha Narula says, “The core of what we have built is a high-speed transaction processor for centralized digital currency, which demonstrates the throughput, latency and flexibility of a system that can support a payments economy at the scale of the United States.” Is.” , director of MIT’s Digital Currency Initiative and a research scientist at the MIT Media Lab, who led the effort along with the Boston Fed. “It is important to note that this project is not a comment on whether or not the US should issue a CBDC – but work like this is important to help determine the answer to that question. This project will make a more viable design.” and serves as a platform for comparison, providing a place to experiment and collaborate on more advanced digital currency functionality.”

The researchers developed two complete sets of computing source codes, or “codebases,” for software systems. A codebase capable of handling 1.7 million transactions per second, 99 percent of which ended in less than a second – well above the original benchmark of 100,000 transactions per second they sought to achieve. The other codebase was able to process around 170,000 transactions per second. This level of throughput will help finalize each transaction at the central bank, while enabling the development of other machine-to-machine transactions – both of which will potentially be critical to CBDCs.

Those findings follow in a paper titled “A High-Performance Payment Processing System Designed for Central Bank Digital Currencies,” released by MIT and the Federal Reserve Bank of Boston. Project Hamilton software, called OpenCBDC, is also released under the MIT open-source license. This is one of the other work being done on the issue of CBDCs in the Federal Reserve System.

To be sure, any move toward a digital version of the currency will involve a number of additional policy decisions and software features that will need to be decided by the US Congress and other regulatory experts. As the team explains in the paper’s executive summary, “Many technical design questions remain open to scrutiny. The answers to these questions will have meaningful implications and consequences for whether there are options available to policymakers.”

Indeed, Narula insisted, “Central bank policy negotiations regarding digital currency are still in their infancy.” And in relation to this, she adds, “There are many research questions that we have yet to answer, such as the role of intermediaries, how to securely promote access, and how to design for those whose Probably don’t have a smartphone or frequent internet access.”

Nevertheless, several countries are showing interest in the concept of CBDCs: the Central Bank of the Bahamas, the Eastern Caribbean Central Bank and the Central Bank of Nigeria have already issued CBDCs, and China is running a late-stage CBDC pilot project. . The new research is a step toward a robust hypothetical CBDC model, which could be used by an economy that is similar to the U.S. economy.

The Project Hamilton research collaboration between MIT and the Boston Fed began in August 2020 as an initiative to investigate a hypothetical CBDC model. The work done so far represents phase one of the project, an evaluation of the fundamentals of transaction processing.

,We believe it is important to delve deeper into technology questions before policy discussions begin, and this research was designed with that in mind,” says Jim Cunha, executive vice president of the Federal Reserve Bank of Boston. Huh. “While policy decisions influence system design, we also believe that important research can inform policy makers about what is possible.”

a viable option

In two digital currency designs tested by the MIT and Boston Fed teams, users interact with a centrally administered transaction processor, using a digital wallet with personal, cryptographic signatures that authorize the movement of funds. A ledger, which keeps complete records of transactions in the order in which they were processed, turned out to be the slowest of the two systems. “We found that there were significant bottlenecks,” Narula says.

The researchers also noted that with the faster system, processing 1.7 million transactions per second, transaction volume “appears to scale linearly with the addition of more servers,” maintaining a significant amount of activity. Will keep

The team knew that consumer privacy could be an essential consideration in the design of a working US digital currency, and they designed relatively streamlined systems with that issue in mind.

“We created architectures where the central bank didn’t need to see or store [much] User information,” Narula says, noting that ultimately CBDC privacy practices will be informed by policy choices.

The question of system flexibility is also important for any CBDC. In this case, modeling by Project Hamilton researchers showed that if two large regions of the US lost connectivity, the digital currency system could continue to operate elsewhere and there would be no data loss or system disruption.

Boston Fed officials say the work represents a significant step forward in evaluating the potential of CBDCs.

“Researching a hypothetical US CBDC means you need to think about the highest possible bet,” says Robert Bench, assistant vice president of the Boston Fed’s Secure Payments Group. “Technological stress on the digital dollar of the theoretical future will be enormous. We are proud of the work by our team and MIT to build a processing engine that provides both the functionality and flexibility to understand how money may work for decades to come. Is.

road ahead

As Narula emphasized, a number of questions remain about CBDCs that will need to be discussed among government officials, public policy forums and software engineers to determine the viability of a central bank digital currency. can and can it be made. In a way that satisfies concerns about accessibility and inclusion.

Technical research can support various CBDC approaches, including a direct-to-consumer model, while the government will have to determine whether financial institutions will play a role as well. And, as Narula testified before the US House of Representatives Committee on Financial Services last June, about 36 percent of people in the US who don’t have bank accounts don’t even have a smartphone. In this and in other areas, policy decisions and technology design are overlapping matters.

Releasing Project Hamilton software under its open-source license could help people collaborate further on CBDC research.

“This is clearly an important way to build, implement, and potentially launch, in large part because the monetary system benefits from transparency and verification, and open-source offers those two things,” Narula says. .

The researchers involved in Project Hamilton are now pursuing the second phase of their research, in which they will analyze additional types of functionality related to a hypothetical digital currency. These could potentially include tools needed for both privacy and compliance, matters related to smart contracts and many other specified uses, auditability, and more.

“There are many important design questions that have yet to be resolved, and we look forward to conducting more research to address those issues,” Narula says.

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