Federal Reserve and MIT Begin Developing a New Digital Dollar

The United States Federal Reserve and researchers at the Massachusetts Institute of Technology (MIT) are collaborating on a central bank digital currency (CBDC) initiative called Project Hamilton.

Project Hamilton has now tested a digital dollar that the Fed claims can process 1,700,000 transactions per second.

According to the project’s whitepaper,

“Our primary goal was to design a core transaction processor that meets the robust speed, throughput, and fault tolerance requirements of a large retail payment system. Our secondary goal was to create a flexible platform for collaboration, data gathering, comparison with multiple architectures, and other future research. With this intent, we are releasing all software from our research publicly under the MIT open source license.”

Phase 1 of the project sought to implement two different digital dollar architectures which address the performance, resiliency, and flexibility problems associated with CBDCs.

“The first idea is to decouple transaction validation from execution, which enables us to use a data structure that stores very little data in the core transaction processor. It also makes it easier to scale parts of the system independently. The second idea is a transaction format and protocol that is secure and provides flexibility for potential functionality like self-custody and future programmability. The third idea is a system design and commit protocol that efficiently executes these transactions, which we implemented with two architectures.

Both architectures met and exceeded our speed and throughput requirements.”

According to the project whitepaper, phase 1 of the project highlighted key insights into digital dollar design.

“Select ideas from cryptography, distributed systems, and blockchain technology can provide unique functionality and robust performance…

CBDC design choices are more granular than commonly assumed…

[And] by implementing a robust system, we identify new questions for CBDC designers and policymakers to address, regarding tradeoffs in performance, auditability, functionality, and privacy.”

Project Hamilton now plans to move to Phase 2, which will explore alternative technical designs from a wide range of research topics.

“Research topics may include cryptographic designs for privacy and auditability, programmability and smart contracts, offline payments, secure issuance and redemption, new use cases and access models, techniques for maintaining open access while protecting against denial of service attacks, and new tools for enacting policy.”

Featured Image: Shutterstock/INelson