The Bank of England has recently released the results of its investigation of blockchain technology, where they worked in partnership with a start up called Chain. They have produced a proof-of-concept for a digital ledger network, that can handle data, whilst keeping privacy. The paper was published earlier this week.
The paper was academic as opposed to practical, and the aim was to ‘explore some of the key questions that could arise from ensuring privacy on a distributed ledger system’. The exercise consisted of the transfer of ownership of a fictional asset between a number of participants, which includes a central authority and a regulator. It should be added that the central authority issued the assets and invited participants to the network, and the regulator could view all transactions.
The results showed that attackers would need the private keys of all the users of the system for them to decrypt all of the data. Whilst this was perhaps unlikely, given how technology has advanced, it could be a possibility.
The exercise used a protocol that had been developed by Chain, which allowed the transaction amount and the currency to be hidden. In a transaction, the participants would receive an unblinding key, where they found that;
“…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.”
They identified a trade off between resilience and privacy, whilst concluding that;
“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.”
In 2017, the Bank Of England published 65 research papers, and it was back in 2015, that it first recognised the potential of blockchain. Mark Carney, the Bank Governor also reiterated recently that blockchain technology is an area of interest for the bank, and he believes that a national cryptocurrency could even be in the works for the future.