The Bank of England (BoE) is currently developing a blockchain PoC based around maintaining privacy over a distributed ledger network while still keeping data shared across the network. According to a paper released on Wednesday, the UK’s central bank has partnered with blockchain infrastructure startup Chain for the project.
The projects main questions are concerned with whether confidentiality can be adequately maintained in a blockchain-based system, and whether there must necessarily be a trade-off between privacy, performance and resilience.
The bank wants to know if a high level of data privacy can be kept even if the network is facilitating transactions of different financial assets.
The ideal scenario
The PoC describes a scenario in which the BoE is able to design a distributed ledger system that keep transactions private, whilst still allowing data to be stored across the entire network in such a way as to allow for effective regulatory oversight.
The BoE would, as the central authority of the network, be allowed to issue new asset units as well as retire them, and to grant access to participants. The aim of such a system would be to:
“…ensure that no party (except for the regulator) was able to infer details about transactions which they were not counterparty to, including ensuring that participants in the consensus process did not have full visibility of transaction details.”
This would mean that any attacker would need to obtain the private keys to every transaction in order to decrypt all of the data, which would be extremely difficult in today’s technological environment.
The BoE concludes:
“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 all transactions. However, the trade-offs would still need to be further explored, especially with respect to scalability, speed of transaction processing and risks around the security of the cryptographic techniques employed.”