The Bank of England has released the results of its latest investigation of blockchain technology, conducted in partnership with a startup called Chain.
Specifically, the UK central bank has published a proof-of-concept for a digital ledger network that will handle data in a way that will allow both privacy and regulatory oversight. The paper, entitled “Fintech Proof of Concept”, was published on Wednesday.
According to the paper, the aim of the exercise was to “explore some of the key questions that could arise from ensuring privacy on a distributed ledger system.” It was academic rather than practical, and no testable technology was developed.
The exercise consisted of the transfer of ownership of a fictional asset between a number of participants, including a central authority and a regulator. These two nodes had additional powers. The central authority issued the assets and invited participants to the network, and the regulator could view all transactions. No other party could infer details of transactions that it was not party to.
The bank found that an attacker would need to obtain the private keys of all of the users of the system in order to decrypt all of the data. The bank considered this unlikely, but a possibility given adequate technology.
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The exercise used a ‘blinding’ protocol developed by Chain which hid the transaction amount and the currency used. Participants in a transaction would receive an un-blinding key. The bank found that the “resilience of the system would be affected by the approach chosen by the regulatory node and whether they would be required to proactively participate in the signing of transactions as they occur or just observe and rely on actions and incentives outside of the technical solution.”
The bank identified that there is a trade-off between resilience and privacy. For example, in a system in which transaction information is only shared between the parties to that transaction, privacy is optimal but the advantages of a blockchain are negated. However, it noted that there are as yet no tried and tested cryptographic privacy protocols that can cover an entire network at scale.
The study paper concluded: “Overall, it appears theoretically possible to configure a distributed ledger system in such a way that transactions remain private whilst keeping all data shared across the network, and at the same time maintaining a regulatory view of transactions.”
BoE and blockchain
The Bank of England’s website says that it published 65 research papers in 2017. It actually first said that it recognises the potential of blockchain technology in 2015. In July 2017 it tested Ripple successfully, although it concluded that the system is “not sufficiently mature”.