Financial institutions all over the world are working to adopt the blockchain while central banks are thinking ahead and come up with own cryptocurrencies developed on the basis of the blockchain.
Bank of England has announced a new digital currency called RSCoin created by two researchers Sarah Meiklejohn and George Danezis at the University College in London under the direction of UK’s central bank. The paper Centrally Banked Cryptocurrencies presents the cryptocurrency: “We introduce RSCoin, a cryptocurrency framework in which central banks maintain complete control over monetary supply, but rely on a distributed set of authorities, or mintettes, to prevent double-spending. While monetary policy is centralized, RSCoin still provides strong transparency and auditability guarantees.”
In contrast to bitcoin intended for peer-to-peer transactions and being beyond the control of any political authority, RSCoin has much greater scope. Surprisingly, it will be a tool of state control, enabling the Bank of England to keep a tight grip on the money supply and respond to crises. It will allow to eliminate the possibility of commercial banks to create money out of thin air under a fractional reserve financial system.
RSCoin can significantly change the management of monetary policy. Dr George Danezis, working on the design at University College London, says: “Whoever reacts too slowly to these developments is going to take it on the chin. They will lose their businesses. My advice is that companies should play very close attention to what is happening, because this will not go away. Deep in the markets there are dark pools buying and selling shares, and entities that facilitate that foreign exchange. There are Visa, Master, and PayPal. These are the sorts of guys that we are going to disrupt.”
In order to check the efficiency of RSCoin, it has been tested using 30 different computers inside a cloud computing platform provided by Amazon. One of the developers, Sarah Meiklejohn, revealed that they are discussing further research and future adoption of RSCoin with the Bank of England.
Bank of England has already announced its intention to explore the blockchain saying that it becomes impossible to ignore the benefits, and challenges at the same time, that decentralized payments can offer. Distributed ledger enables verification of payments without a trusted third party. Thus it needs advanced defense against money laundering, terrorist financing, identity theft or other forms of fraud.
“More connected, IT-intensive networks provide more channels for cyber attackers to target and greater risks of contagion. And rapid growth of non-bank payment providers could have profound implications for the business models of banks, challenging their revenue streams, altering the economics of credit provision and changing the risks to financial stability. New payments technologies also pose practical challenges, such as ensuring they interface effectively with legacy IT systems in banks and payments infrastructure,” said Bank of England in one of its reports.