Concept of secure transactions from the Bank of England
The Bank of England (main financial regulator in the UK) has recently published a document considering a conceptual advancement of Proof-of-Concept (PoC) blockchain. Let’s analyze why British financiers have opted to improve blockchain and what exactly they offer.
The regulator decided to start with the research of the current PoC. For this purpose, the Bank’s representatives collaborated with the infrastructure network provider Chain. The first questions related to the advancement of PoC were identified back in 2016.
Researchers warn that their work was a theoretical rather than practical endeavor and did not involve the development of the new software.
The main concern of researchers is data privacy and protection against hacking attacks. One of the scenarios assumed the transfer of ownership of a fictional asset among several players. The central authority would be able to issue new asset units, providing participants with access to use blockchain. Namely use, as only the regulator would have right to view all transactions.
To conclude, researchers offered that blockchain-based systems should be configured in a way that transaction data was available only to parties directly involved in transactions and the regulator. Researchers got interested which cryptographic techniques could ensure such functionality. At the same time, they knew that other central banks also addressed similar issues when implementing alternative approaches to blockchain development.
Everything depends on technical solutions
Further, the team of researchers was considering how such changes would influence blockchain confidentiality, productivity, and whether new risks would emerge.
On the condition that transaction data is accessible only to a small group rather than all network participants, hackers would have to crack private keys to every transaction in order to decrypt data. While that is hardly possible today, researchers factored in a risk that future technologies could have a potential to manage such a task.
During the discussion, it was highlighted that many keynote challenges and risks would depend on technical solutions and network structure. A confidentiality scheme was offered that hid identifiers and amounts for all transactions and allowed viewing them only using special blinding keys.
The general resilience of the system would be influenced by the approach chosen by the regulatory node. For that reason, researchers have not decided yet whether the regulator should actively participate in signing of transactions as they occur or just observe and rely on technical solutions.
Conclusions of researchers
The team of the Bank of England and Chain concluded that theoretically it seemed possible to develop blockchain in a way that data remained private while shared across the network. At the same time, the regulator should have access to all transactions. However, researchers stated that such solutions were still under development.