Bank of England to Launch its Own Cryptocurrency
Bitcoin is under threat as England’s Central Bank is planning to give it competition.
The Bank of England has announced a plan to launch its own Bitcoin-like cryptocurrency. The cryptocurrency called RSCoin will also function on Blockchain, the distributed ledger system on which Bitcoin and other cryptocurrencies are built.
Earlier, in January 2016, China’s National Bank also announced plans to launch a virtual currency.
Radical Shift from Traditional Crypto
RSCoin was originally developed by researchers at the University College of London (UCL) which provides greater centralized control compared to Bitcoin and other cryptocurrencies.
The original paper published by the UCL researchers behind RSCoin explained:
“RSCoin’s radical shift from traditional cryptocurrencies is to centralize the monetary supply. Every unit of a particular currency is created by a particular central bank, making cryptocurrencies based on RSCoin significantly more palatable to governments. Despite this centralization, RSCoin still provides the benefit over existing (non-crypto) currencies of a transparent transaction ledger, a distributed system for maintaining it, and a globally visible monetary supply. This makes monetary policy transparent, allows direct access to payments and value transfers, supports pseudonymity, and benefits from innovative uses of blockchains and digital money.”
In this case, the Bank of England would be the singular controller for the Blockchain and the encryption key that allows the subtraction or addition of the cryptocurrency from the Blockchain.
Matthew Commons, the CEO of Cambridge Blockchain LLC, explained:
“RSCoin is perhaps best described as a "hybrid" approach between the distributed model of bitcoin and conventional centralized fiat currency. In the hybrid model, a central bank delegates the authority of validating transactions to a number of other institutions that are called "mintettes"; they are known and can be held legally accountable for their actions. This test should help provide validation as to whether such an approach is sustainable and scalable.”
Significance of RSCoin
Matthew Commons spoke favorably and said RSCoin will bear great significance:
“Around the world, policymakers are reexamining how a digital currency controlled by a central bank might provide faster, lower cost payments with more traceability. In today's environment of low or negative interest rates, digital currencies may also provide new monetary policy tools that were previously unavailable.”
Bas Wisselink of Nxt Foundation believe that RSCoin would be just another cryptocurrency but without the efficient mechanism of public blockchains:
“It’s not surprising that banks are trying this, but in the end they will most probably need to accept the fact that their approach represents a dead end. A permissioned blockchain means constant work is needed to maintain security, which is exactly what is being outsourced and incentivised by permissionless blockchains. They are effectively throwing out the efficiency mechanism.”
David Mondrus said while it is entirely possible that Bank of England be able to sell it thanks to marketing Gurus but “fortunately the Bitcoin community screams about scams loud and often, and I expect this time will be no exception”.
Everything That Can be Manipulated, Will be
There are also hesitations as to the increased level of corruption that many believe would be connected to a private system.
“Look at basic human psychology and history; can you name any system where corruption is a built in possibility that did not succumb to it? Blockchain technology is a way to avoid having to allocate unneeded trust and once again, they are removing just that”, Bas Wisselink agreed, further explaining, “I am convinced banks can use blockchain technology, but tearing out the essentials to do it is certainly not the way. It either shows a lack of understanding of the principles, or an unwillingness to use the tools as they are meant to be.”
David also nodded: “Everything that can be manipulated, will be manipulated. The point of a distributed value network is to distributed that risk in order to lessen it which is missing in this case.”