In the United States, a central bank digital currency may be on the horizon — but not with the blockchain.
Which begs the question: just how will the digital dollar be issued and maintained, and how will the ecosystem itself be created?
In news this week, former Boston Federal Reserve President Eric Rosengren, having read the still-unreleased and widely anticipated paper by the Fed delving into CBDC feasibility, said that blockchain will not underpin that currency.
As reported by beincrypto.com, Rosengren commented that blockchain would not be part of the picture “because we want to have sufficient throughput and speed of transactions,” adding that, “the distributed ledger is not as effective a mechanism for meeting kind of the operational needs that we think we will need.”
The details of just what the Fed is thinking when it comes to a CBDC are yet to be officially outlined. The report had been estimated to be released during the third quarter. It is, of course, well past the Sept. 30th quarter end. The report, which could conceivably drop any day now, will more fully flesh out what a CBDC would look like, at least here in the States.
Rosengren’s comments might just puncture the narrative that blockchain is the catchall solution for every technical issue tied to digital currencies and digital assets. That’s only a bit tongue in cheek. After all, it is the “network” and the mechanics that ultimately will point to a digital dollar launch’s success — and by extension, whether the public at large, and corporates, will feel comfortable embracing the new offering.
To look at how glitches and speed bumps can cause friction in a new payments methodology, one need only to look at El Salvador’s launch of bitcoin as legal tender. It’s not an apples-to-apples comparison (after all, in this case, it’s bitcoin, not a CBDC), but several weeks after the country rolled out the option, putting bitcoin alongside the U.S. dollar as official currency, there were and are reports of fraud and incorrect amounts of bitcoin being transferred.
Read Here: Technical Glitches Continue to Mark El Salvador’s Bitcoin Rollout
Rosengren’s remarks also echo some of the considerations raised in an interview earlier this year, where Jim Cunha’s, SVP of secure payments and FinTech at the Boston Fed, told Karen Webster that throughput and resiliency are among the most basic considerations.
Read Here: Boston Fed’s Cunha On Building A Payments Network For The ‘Next 100 Years’
Issuing and scaling digital fiat would require interoperability between different central banks’ digital fiats and payments rails, he told Webster, which gives the nod to the fact that existing rails can help shepherd digital dollars into the mix.
Blockchains, it should be noted, are not invincible. As reported over the summer, in a demonstration of those vulnerabilities, hackers stole and returned $600 million after a cryptocurrency heist.
The hackers pulled off the theft by exploiting a vulnerability in the multi-chain decentralized finance (DeFi) protocol Poly Network, which lets users swap tokens across multiple blockchains, transferring assets across several blockchains.
Read Also: Hackers Return Some Money From $600M Crypto Theft
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