According to a latest report from International Business Times, the Bank of England has said that central banks are looking to utilize the blockchain technology, the technology behind the cryptocurrencies such as Bitcoin to create “hybrid systems.”
The Bank of England said: “There is more than one way in which a distributed ledger system can work, and remuneration would have to be designed in such a way as to incentivise honest participation in the system without leading to socially inefficient over-investment in transaction verification.”
“Further research would also be required to devise a system which could utilize distributed ledger technology [blockchain] without compromising a central bank’s ability to control its currency and secure the system against systemic attack.”
Where does hybrid come from?
As can be understood, the central banks want to control the money flow in the system while using the decentralization technology. Therefore, a ledger system which will be both centralized and decentralized at the same time will be called a hybrid system.
While the Ecuadorian government has already launched its own electronic money transfer system, the Bank of England insists that, “Creating such a system would entail creating a protocol for value transfer over the internet, akin to what Berners-Lee (1989) did for information. Firms offering digital currency services, such as wallets or currency exchange, would operate on top of the platform, raising the question of how they should be regulated.”
The central bank ascertains that further research would be needed to understand how KYC and AML norms can be fulfilled by the firms while maintaining the privacy of the customers.
Bitcoin gained prominence because it enabled anonymous, decentralized, peer-to-peer transactions. However, with central banks focusing on using the Bitcoin technology to create a partially centralized system, it may lose its distinct appeal. But in times of repeated scams, a government-backed cryptocurrency may be the option that customers are looking for.