Bank of England working on Bitcoin alternative RSCoin

The Bank of England has partnered with researchers at University College London to help it create a centrally controlled digital currency.

The newly-developed RSCoin uses cryptography to combat counterfeiting, and unlike the technology underpinning Bitcoin, the blockchain, RSCoin is controlled by a central body.

Blockchain is distributed ledger technology where a network of computers record transactions. Each computer must approve a transaction before it is recorded in a new "block".

In a 2015 paper [pdf], UCL researchers Sarah Meiklejohn and George Danezis envisage that monetary policy for RSCoin would be controlled by a central bank.

The technology itself would be reliant on a distributed set of authorities - like commercial banks - to prevent double-spending, Meiklejohn and Danezis wrote.

" ... central banks maintain complete control over the monetary supply, but rely on a distributed set of authorities, or mintettes, to prevent double-spending. While monetary policy is centralised, RSCoin still provides strong transparency and auditability guarantees," the paper states.

"The ultimate goal for RSCoin is to achieve not only a scalable cryptocurrency that can be deployed and whose supply can be controlled by one central bank, but a framework that allows any central bank to deploy their own cryptocurrency."

The lack of scability of Bitcoin and other existing crypto-currencies is seen as major issue by the researchers. At most, Bitcoin can handle seven transactions per second, and "faces significant challenges in raising this rate much higher" due to high computational energy requirements, they wrote.

In comparison, Paypal handles 100 transactions per second, and Visa on average can deal with anywhere from 2000 to 7000, the researchers said.

RSCoin has been trialled across 30 different computers so far, hosted within Amazon Web Services, the paper states. The bank is now looking at real-world implementation, and Danezis has published code for RSCoin on the Github source repository.

Referring to transparency of funds, Meiklejohn said a RSCoin ledger could be published publicly by a central bank. She said the system’s design would also allow a central bank to make transactions entirely, or partially, anonymously.

Central and commercial banks globally are looking to either create their own digital currency platforms or invest in blockchain and Bitcoin technologies.

The Australian Securities Exchange is currently working on replacing its post-trade platforms - used for clearing and settlement services to the local equity market - with distributed ledger technology developed internally in partnership with fintech firm Digital Asset.

The People's Bank of China similarly recently revealed it was planning to issue its own digital currency and build new infrastructure in conjunction with Citibank and Deloitte. 

In Australia, the likes of the Commonwealth Bank, NAB, Westpac and Macquarie Bank have joined 42 global financial institutions to test a blockchain-based system for trading fixed income as part of an RS CEV project.

ANZ Bank is separately workingwith the not-for-profit Linux Foundation on developing an open source enterprise-grade blockchain framework