The U.S Federal reserve, which is the most influential bank in the world due to its printing and distribution of the worlds reserve currency, the U.S dollar, have published a research paper on the applications of the blockchain, which is the distributed ledger technology which Bitcoin runs behind.
It describes how the blockchain works, and references how the nodes in the Bitcoin network do the same job. The federal reserve has considered using blockchain technology, acknowledges that Bitcoin is an open system, and the uses by which the banks would put the blockchain to are closed system.
The paper further discusses that Bitcoin is a permission less system, and they have the desire to implement the blockchain as a ‘permissioned’ system which they have control over so they can stop transactions if needed etc. This goes against the original vision of why the Blockchain was designed, and is showing that the U.S Federal reserve is trying to work out how they can keep their control on the financial system.
Bitcoin was novel in that it removed the control of the financial transactions on it from any one entity or government and handed control (and responsibility of storing your coins) to the people and further, prevented any changes to the rules without a 51% or greater consensus of miners.
It discusses also smart contracts using the blockchain, like the Ethereum platform. The paper discusses the advantages of blockchain technology, including
· Reduced Complexity
· Faster clearing of funds
· Removes the need to connect multiple record keeping data centres.
· Increased resilience of the network
· Reduced operating and financial risk
It has mentioned how Bitcoin is faster for international payments over traditional bank wires. No banking establishment has figured out a better way to do this before Bitcoin and the federal reserve has acknowledged this.
They have attempted to use the fiasco of the Ethereum DAO as an excuse to have a central ‘ruler’ of a network like the blockchain. But the banks will hopefully start to realize that the advent of a currency like Bitcoin is removing their control and ability to manipulate the market, and that it is unlikely the public will accept ‘closed’ blockchains when there is an open blockchain such as Bitcoin’s.
As the security and integrity of a blockchain is dictated by the fact the mining / block finding is decentralized, if the bank or banking entities had most or all the computing power on their ‘closed’ blockchains, the blockchain technology is no guarantee that they have not tampered with it in any way. The federal reserve has acknowledged the advantages of the blockchain, and there is a chance the banking system will try to no avail to exploit it for their own ends.
But it is interesting seeing the fact that the establishment is admitting the usefulness of the blockchain, especially the world’s largest financial establishment.