IBM reported to be investigating ‘Bitcoin-style’, blockchain-based currency transaction system
Fri 13 Mar 2015
IBM is investigating the possibility of using the underlying exchange mechanism of Bitcoin to develop a digital cash system based on existing national currencies, according to an inside source.
Reuters, speaking to ‘a person familiar with the matter’ (who remains unnamed due to ‘a lack of authorization’ to discuss the project), reports that IBM is researching the use of the blockchain open-ledger technology underpinning Bitcoin to create a digital currency system freed of clearing houses and other institutional logjams and procedures, but which deals in existing currencies, as opposed to Bitcoin’s ‘global’ and geographically-neutral currency model.
Reuters’ source says: “When somebody wants to transact in the system, instead of you trying to acquire a bitcoin [sic], you simply say, here are some U.S. dollars […] It’s sort of a bitcoin but without the Bitcoin,” The source continues; “These coins will be part of the money supply…It’s the same money, just not a dollar bill with a serial number on it, but a token that sits on this blockchain,”
According to the source IBM is maintaining ‘informal discussions’ with the U.S. Federal Reserve, and a number of other banks, and will proceed with the initiative subject to approval from the central banks. Reuters cites a Bank of England report (Emergence of Digital Currencies [PDF]) from September 2014 which confirms the enormous interest of the banking sector in using the Blockchain as a transaction mechanism. The report opens with acknowledgement of the rising popularity of Bitcoin and other cryptocurrencies, but contends that ‘the key innovation of digital currencies is the ‘distributed ledger’ which allows a payment system to operate in an entirely decentralised way, without intermediaries such as banks,’
The BoE report also acknowledges, as does the Reuters article, that security considerations are still an issue in blockchain-based transaction systems – the IBM system is said to be ‘still in the early stages and constantly evolving’.
The blockchain provides a distributed-ledger system which all participants possess; though the data is public, the transactions retain privacy, as participants use a system of public/private keychain pairs similar to PGP, one of the oldest – and the most resilient – online encryption methods.
The upbeat conclusion of the Reuters source suggests that both IBM and the banks it is in talks with are likely testing the waters of public opinion with a calculated leak: “We are at a tipping point right now,” says the source. “It’s making a lot more sense for some type of digital cash in the system, that not only saves our government money, but also is a lot more convenient and secure for individuals to use,”
The proposed distributed transaction ledger for the project would be under the governing bank’s central control, a fact, if true, that has Cryptocoins News hopping mad at the announcement, describing the IBM project as a ‘Bitcoin knock-off’. In a scathing semi-editorial report Evander Smart predicts that IBM’s implementation would likely be ‘soft-launched’ as a testbed for the digital dollar.
“Can IBM effectively knock-off Bitcoin’s Blockchain, and keep it as secure? Do you trust the private Federal Reserve to continue to manage a nation’s finances, especially after their last 100 years of track record?In modern Western society, over 95% of fiat currency is digital instead of paper, so the only question going forward is, do you want to use their fiat centralized digital money or your decentralized Bitcoins?”
A successful launch of a blockchain-based national currency transaction system would have many ramifications, not least for large sectors of the banking industry itself.
The last six months have brought forth a general consensus that people should have excellent online security, so long as it does not apply to government authorities – a problematic technical model which seems set to bounce round the private and public arena even more extensively in 2015. Banks do not traditionally number among the most obstructive institutions to official investigations, but it seems reasonable, based on recent history, that agencies such as the CIA and NSA are likely to be taking an interest in the cryptographic side of Big Blue’s digital buck.