Theoretical research into a central bank digital currency (CBDC) in the United States has found that distributed ledger architecture has “downsides.”
The Federal Reserve Bank of Boston and the Digital Currency Initiative at the Massachusetts Institute of Technology published the findings of their initial research into a CBDC on Thursday.
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The research project, dubbed “Project Hamilton,” tested a “hypothetical general purpose CBDC” using two potential models.
The first one processed transactions through an “ordering server” distributed ledger technology (DLT), which organized the validated transactions into blocks to create an ordered transaction history.
The researchers were able to use this architecture to complete over 99% of transactions in under two seconds and the majority of transactions in under 0.7 seconds.
However, the ordering server resulted in a number of issues due to being run under the control of a single actor, the researchers concluding that “a distributed ledger architecture has downsides. “
“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."
They added that despite using ideas from blockchain technology, a “distributed ledger operating under the jurisdiction of different actors was not needed.”
The second architecture processed transactions in parallel on multiple computers, rather than relying on a single ordering server to prevent double-spending. The researchers wrote that although “this results in superior scalability,” it did not “materialize an ordered history for all transactions.”
It demonstrated throughput of 1.7 million transactions per second with 99% of transactions durably completing in under a second, and the majority of transactions completing in under half a second.
Related: Fed issues discussion paper on benefits and risks of a digital dollar
Project Hamilton was first announced in 2020 to explore the use of existing and new technologies to build and test a hypothetical digital currency platform. The code is the first contribution to OpenCBDC, a project maintained by MIT that will serve as a platform for further CBDC research.
Boston Fed executive vice president and interim chief operating officer Jim Cunha said that the project illustrates that it is “critical” for change makers to not only understand how emerging technologies could support a potential CBDC but also what challenges remain.
“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."
The director of the Digital Currency Initiative at MIT Neha Narula said that "there are still many remaining challenges in determining whether or how to adopt a central bank payment system for the United States.”
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