Digital dollar should be as robust as bitcoin, according to Fed official

Key facts:

The Fed’s research team focuses on a platform that is easy for most to adopt.

The new platform must be as robust as the bitcoin blockchain.

The prototype of the central bank digital currency (CBDC) or digital dollar in which the Federal Reserve (Fed) of the United States works, will have its similarities with bitcoin, but will also keep its distances. Above all, because it must solve some problems such as financial exclusion and improve the scalability offered by the current system.

This was pointed out by Anders Brownworth, payment systems architect at the Federal Reserve Bank of Boston, during his speech at the MIT Bitcoin Expo 2021, one of the most important academic conferences on blockchain in the world, which this year took place between April 3 and 4.

Brownworth, who previously worked on the design and launch of Circle’s USDC stablecoin, is now part of his research. the Fed and the Massachusetts Institute of Technology (MIT) on digital dollar prototypes that they plan to present for July of this year.

During his lecture, Brownworth explained that the researchers on board the US CBDC project are advancing their work with the capacity that the digital dollar must have to allow greater financial inclusion. Also, the platform should significantly improve the overall efficiency to carry out digital transactions.

As Brownworth commented, the digital dollar platform must keep its distance from bitcoin. This is because, according to the official, the pioneering cryptocurrency system is not practical for most, because running a node requires a large storage capacity that not everyone has. So “if you can’t deal with that problem, you have to trust a node to validate your transaction,” he said.

He referred to bitcoin as a monolithic system because of how robust and unflappable its blockchain is and believes that the digital dollar platform must be just as robust. He also said that the team of researchers from the Fed and MIT is focused on offering a simple technology, easy to adopt by the majority and that it must be viable to guarantee better scalability, as Brownworth explained during the virtual conference.

In this sense, the plan is for the digital dollar platform to be capable of exceeding the 50,000 transactions per second that are currently made with cash and the 60,000 per second that are made with a credit card. “Being conservative we could think of around 250,000 transactions per second “said the Boston Federal Reserve official.

So, as they look at the capabilities and limitations of existing systems, Brownworth believes that, for now, the first discovery is that there is no project that offers the technology that meets the unique needs of a central bank. Meanwhile, there are really no solutions designed for the use case of a CBDC. “You can’t just take something and adapt it, because we already know that’s not going to work,” he added.

Anders Brownworth said the Fed will select the digital dollar prototype that will suit its needs. Source: Screenshot mitbitcoinexpo.org.

The challenges of the digital dollar

In short, Brownworth spoke of the challenges that the team of researchers working on the digital dollar platform has been posing. He called the homework a sushi recipe. From this it is understood that It is a project based on a completely new model with many possible varieties.

The challenge is not only that the platform is capable of processing large volumes of transactions quickly, cheaply and with a strong consensus between the automatically updated records. Rather, the right technology must also be chosen or else the unbanked population could be left out once again.

However, researchers also face other challenges because the digital dollar system it must be able to function in the face of unforeseen power outages or without an internet connection. “It really is necessary to think a little to be able to respond to our natural disasters, hurricanes or perhaps, even if people are in the middle of nowhere,” said the official.

To solve the challenges and challenges they face, the team of researchers is studying digital currency use cases, as well as different payment systems, even mentioning smart contracts.

“We are looking at everything, understanding and carefully analyzing what the technology currently presents and we are learning about what we can do. If we only use distributed computing technologies that have already been well understood for decades, we could end up building only a faster version of what we already have. So I think it probably makes sense to consider what new capabilities and new ways of thinking are out there lately and that’s where we’re looking. When we’re done, we will have this sushi menu that will allow the central bank to say, ‘Okay, I want some of this and some of that and then that’.

Anders Brownworth, architect of the Federal Reserve Bank of Boston.

He added that, for now, the plan is to build a hypothetical CBDC to test its performance under a wide variety of conditions.

Recently, Fed Chairman Jerome Powell also spoke of bitcoin when he said that he regards the cryptocurrency pioneer as a substitute for gold rather than the dollar. As CriptoNoticias reported, the executive said that stablecoins are the ones that present an “improvement” because they are backed by national currencies such as the US dollar, which, in theory, gives them “credibility.”