The Bank of England (BoE) is seeking to take on Bitcoin, the non-regulated peer-to-peer digital currency in use for the last few years (and popular with the underworld in laundering proceeds of crime and a route for ransomware payments to cyber criminals). Bitcoin, which has made an estimated $5bn (£3.5bn) of Bitcoin transactions operates a “distributed ledger” similar to how central banks operate. Bitcoin’s limitation however lies in the restriction of its code to 21m Bitcoins and that it can only handle sever transactions per second.
The new digital crypto currency, RSCoin, crafted by a team at University College London for BoE, seeks to create a State controlled digital ledger held by those trusted to be in charge of the nation’s currency but without the limitations of Bitcoin or the add-on charges and middlemen elsewhere in the industry. Potentially and most controversially, RSCoin has the potential to offer a system whereby ordinary people could hold accounts directly with the Bank of England, thus competing directly with commercial banks. Ben Broadbent, the BoE’s deputy governor believes that an RSCoin currency would greatly widen the balance sheet of the central bank and allow it to keep better control of the money supply and be better able to respond to crises.
Led by Dr George Danezis, UCL presented their findings at the Network and Distributed System Security Symposium (NDSS) in San Diego recently and suggested that a national pilot could be up and running within 18 months. “Whoever reacts too slowly to these developments is going to take it on the chin. They will lose their businesses”
Central banks originally viewed Bitcoin as a rogue currency and a threat to monetary order. However with heavyweight financial organisations carving big profits from their payment systems Visa, Master and PayPal) and commercial banks and financial institutions making money from the complex manipulation of the money markets (through stocks and shares, foreign exchange dealings, derivatives and hedge funds etc.), this proposal has the potential to cut out gross fat and privileges of the competition. It could simplify the trading of money and one would hope, offer greater transparency and accountability, much lacking for many years in banking.
It would be highly disruptive if adopted and create a wholly new era in finance. One would have to trust that the State’s banker would keep the interests of the nation it serves at the forefront of its modus operandi – and that corporate greed did not play a part. That, has yet to be seen and proven to an unsurprisingly distrustful public.