The Bank of Italy is planning quite a bit of research work on distributed ledger technology (DLT). In a report published today, it shares a new permissioned consensus protocol, which it adapted to work with Bitcoin and it is open sourcing. It’s not the first to create a permissioned version of Bitcoin. However, it added a nuance which provides confidentiality for the identity of the validators. Its work aims to create a central bank DLT.
“Our target use case would be a speculative DLT-based payment system whose high availability and fault/attack tolerance rests upon a distributed platform operated cooperatively by several Central Banks in a given monetary area,” the paper states.
It’s not the first central bank to do deep work on blockchain. The People’s Bank of China has its Digital Currency Research Institute, which developed a bespoke blockchain based on Ethereum. This is deployed for the mBridge cross border CBDC project. It uses a Chinese consensus protocol, Dashing.
Stepping back, the Bitcoin blockchain uses Proof of Work as a security measure because it’s a permissionless blockchain with unknown validators. Those validators have to come together to approve new blocks of data to be added to the blockchain. Permissioned environments sometimes use Proof of Authority, where a known set of validators participate in the consensus. This was the starting point of the Bank of Italy.
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