Theoretical research regarding the development of a Central Bank Digital Currency (CBDC) in the United States has discovered that distributed ledger technology (DLT) has several drawbacks.
On February 3, the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology’s (MIT) Digital Currency Initiative revealed the results of their preliminary research on a CBDC.
The study, called “Project Hamilton,” used two different models to test a “hypothetical general purpose CBDC”:
- The first arranged the validated transactions into blocks to produce an ordered transaction history using “ordering server” DLT. The team was able to process more than 99% of transactions within two seconds, with majority of transactions completing within 0.7 seconds, using this design.
- The ordering server, on the other hand, caused a slew of problems because it was under the control of a single actor, leading the researchers to conclude that “a distributed ledger architecture has downsides. “It achieved a throughput of 1.7 million transactions per second, with 99% of transactions getting completed within a second and the majority taking less than half a second to complete.
Despite the use of blockchain technology, they emphasized that a distributed ledger functioning under the control of diverse entities was not required.
Research sets an example
To avoid double expenditures, the second design processed transactions in parallel on numerous computers rather than being dependent on a single ordering server. Although this leads to greater scalability, the research team noted that it did not “materialize an ordered history for all transactions.”
The experiment sets an example for countries like India that are actively developing CBDCs, that it is “critical” for change-makers to understand not only how developing technology could support a prospective CBDC, but also what the challenges are on the way, says Interim Chief Operating Officer and Boston Fed Executive Vice President Jim Cunha.
“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,” he adds.
China is leading the CBDC development worldwide. As TheCoinRise reported, The People’s Bank of China (PBoC) recently launched the test wallet for digital yuan, e-CNY.