On Thursday, the process of creating the possible U.S. dollar took a step ahead as the initial research by the Federal Reserve Bank of Boston was successful. As a result, the code can now finally support a currency. This brought a successful end to the initial stage of the long-term research project first introduced in August 2020 named “Project Hamilton”.
The collaborators Boston Fed and Massachusetts Insititute of Technology’s Digital Currency Initiative have published a 35-page white paper on their research findings, which aims to develop softwares to enable transactions.
In Phase 1, a design was developed for a “modular, extensible transaction processing system,” It was then used in two different architectures to evaluate their speed and “fault tolerance.” Fed says that this design will allow users to communicate with a “central transaction processor” with the help of digital wallets that store cryptographic keys. This design is also capable of supporting various models for mediators and data collection. It will also allow users to safeguard their funds without storing any personal identification user data in the core of the transaction processor.
The report says that the “flexibility, performance, and resiliency challenges” of the design address three key ideas – decoupling transaction validation from execution, secure and flexible transaction format and protocol, and designing a system that will efficiently carry out the transactions included in the architectures.
The central bank branch says, “Both architectures met and exceeded out speed and throughput requirements.” For example, the aim was to process 100,000 transactions per second in less than 5 seconds, but both the architectures have surpassed it by processing 170,000 transactions per second.
Findings of Phase I of “Project Hamilton”
The initial stage of the project has surfaced certain significant learnings on the design of a CBDC. The Boston Fed shares the following regarding the findings :
- “Select ideas from cryptography, distributed systems, and blockchain technology can provide unique functionality and robust performance.” In addition, they suspect an existing database and distributed systems technology that might be able to provide a more conventional payment architecture for CBDC.
- “CBDC design choices are more granular than commonly assumed.”
- “By implementing a robust system, we identify new questions for CBDC designers and policymakers to address, regarding tradeoffs in performance, auditability, functionality, and privacy.” Also, the research has raised concerns regarding the effect of the technical architecture on the use and function of CBDC in payments. Therefore, the Fed is planning to use atomic transactions that will directly impact the system’s performance.
The Next Step
The next phase of “Project Hamilton” aims to add privacy-preserving designs for auditability. Boston Fed and MIT DCI will together “explore new functionality and alternative technical designs”. They will also be examining essential issues such as cybersecurity and balancing user privacy to avoid criminal activity by enabling transparency.
Interim Chief Operating Officer Jim Cunha says that the transformation of the technical research to a possible CBDC will take a minimum of a few years. “There’s a lot of work to do here,” he says.