In recent years major banking institutions have explored this new currency system. As recently as this year The Bank of England announced their initiative to create their own cryptocurrency. They’ve named it RSCoin. This new digital currency shares many characteristics of the famous Bitcoin. Similarly, RSCoin is managed using the same blockchain technology necessary for all other virtual currencies. Researchers at the University College of London developed this specific cryptocurrency.
Though RSCoin has a strong resemblance to Bitcoin there are some critical differences. The money supply of the RSCoin is centralized within The Bank of England. This means one bank generates each unit of the currency. In keeping with this centralized method The Bank of England also controls the blockchain bookkeeping.
The ultimate goal of this practice is two-fold: one, the transactions can be executed more efficiently at lower costs with enhanced visibility. Two, a major banking authority addresses the nefarious aspects associated with cryptocurrencies by instilling confidence and oversight. This oversight is possible because of the blockchain technology. The Bank of England has embraced this concept. An excerpt from a quarterly bulletin offers insight to their focus. The Bank of England believes, “…the key innovation of digital currencies is the ‘distributed ledger’ which allows a payment system to operate in an entirely decentralized way, without intermediaries such as banks.” In this regard cryptocurrencies aren’t much of a departure from the conventional currencies that have been recorded electronically for decades.
Around the world, policymakers are reexamining how a digital currency controlled by a central bank might provide faster, lower cost payments with more traceability. In today’s environment of low or negative interest rates, digital currencies may also provide new monetary policy tools that were previously unavailable.
–Matthew Commons, the CEO of Cambridge Blockchain LLC
The Bank of England’s goal is to achieve a wider acceptance of the RSCoin. The “distributed ledger” is a means to this end. A greater trust can be built when this record is held at The Bank of England. This is a scalable answer to the limits of previous cryptocurrencies. RSCoin can grow with the economy whereas earlier cryptocurrencies have limited circulation totals. This is the appeal of RSCoin. Money supply can be influenced immediately to curtail problems much faster than what traditional money allows.
Out with the old, in with the crypto-currencies
The modernized approach afforded by RSCoin is a stark contrast from a traditional reserve currency. The predominant reserve currency of the world is the US dollar. This means the USD is frequently used as a preferred form of payment in international trade. A cryptocurrency like the RSCoin may be better suited to serve the purpose of a reserve currency. This is due to the flexibility and the low transactional cost of a purely digital currency. With an asset that can only be held in digital form transactions across borders becomes easier. Exchange rates are no longer an influence and movement is fast. It is possible to conceive of the world where the mere existence of RSCoin invigorates more trade.
There are, however, problems that come with these benefits. “Double-spending” fraudulent transactions cause two parties to believe they are being paid when in fact only one receives funds. There have been concerns that this phenomenon is a result of cryptocurrencies. Again, the concept of centralization is the counter to this risk. The plan is to curtail this fraud with oversight coming from one transparent entity. A University College London publication underscores the balancing act of the RSCoin when the author writes, “Despite this centralization, RSCoin still provides the benefit over existing (non-crypto) currencies of a transparent transaction ledger, a distributed system for maintaining it, and a globally visible monetary supply.” This hybrid model may become the common currency of the future.
The outbreak of WorldWar Crypto-Currency
Cryptocurrency purists are unlikely to embrace RSCoin. The intrusion of The Bank of England is in opposition with the strict independence that’s the basis of appeal for Bitcoin holders. Though security concerns persist, As a result, one major regulating body may be a necessary component to cryptocurrencies. The accessibility and transparency of the blockchain ledger system may ease some of these trepidations.
The long-term success of the RSCoin might best be gauged by the emergence of other cryptocurrencies from other central banks. The RSCoin serves as an experiment in a hybrid system of 21st century digitized money. If institutions become comfortable with this revolution in currency we can expect to see a greater adoption of this method. We’re watching another chain form in the evolution of our economy. This is no more disruptive than the decision for a country like the US to move away from the gold standard. The duality of oversight and flexibility offer the best of the old and the new.
It’s too early to state whether this experiment has been a success. However, to date, RSCoin has undergone testing using an array of computers with Amazon’s cloud computing system. This provides a better understanding of how the real world transactions would unfold. Today we need a currency that moves as fast as business. The RSCoin is built for speed and designed to last.