According to financial news website The Deal Room, testing has begun on the Bank of England issued cryptocurrency RSCoin. Using what they term as a hybrid model, it aims to combine the advantages of distributed ledger platforms with the traditional centralized management of the fiat money system to create a unique digital currency. This new cryptocurrency can be used by the central bank to quickly adapt to changing economic conditions and as a change mechanism within global trade. The centralized ledger entirely under the Bank of England control is unlike any other digital currency and how this progresses could have a dramatic effect on the industry.
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One central bank that has been vocal about digital currencies over the last couple of years has been the Bank of England. Earlier in 2016 it suggested that a central bank issued digital currency could be of benefit to both the local economy and users, and according to financial news website The Deal Room, that has become something real as testing of the currency is now ongoing.
Dubbed RSCoin, the cryptocurrency will be controlled directly by the Bank of England, and seeks to combine the benefits of blockchain and the distributed ledger model with the centrally managed fiat monetary system. The aim of this is to provide the Bank of England with a new tool they can use to strengthen the country’s economy and effect global trade.
RSCoin itself has been developed by researchers at University College of London, and although it retains the traits of cryptocurrency, counterfeit resistant and tamper-proof, the ledger will be centralized and held within the Bank of England itself. Access to the ledger will be determined by the bank and is expected to include commercial banking partners and similar financial institutions. The developers refer to RSCoin as a hybrid currency system rather than a digital currency as we have seen before.
The Bank of England sees the benefits of digital currencies, in particular the more efficient transaction mechanisms, in addition, the digital currency offers a more immediate mechanism for influencing money supply than that available within the fiat money system. They even talk of RSCoin making a case for becoming a global reserve currency in the future, as it is both more flexible and provides lower cost transactions to facilitate improved cross border trade.
Some may see this as an attempt to divert attention away from true distributed ledger cryptocurrencies, and thus perceive a threat from this initiative, however there are positives to take from this. Firstly, and most obviously, coming from the Bank of England, this builds trust in the idea of digital currency with the public, regardless of how successful any current cryptocurrency has become, no news coming from the industry will have as much consumer reach as an announcement by the Bank of England, and for that alone it should be welcomed.
The industry’s job as this progresses is to ensure that the positive image is not wasted, but rather built on, with explanation of why a true cryptocurrency is better than this hybrid model on the longer term.