The Bank of England (BoE) has revealed the details of a proof-of-concept (PoC) which explores how distributed ledgers could be configured to ensure privacy while maintaining a regulatory view of all transactions.
The central bank has released a paper on the PoC, conducted in collaboration with blockchain startup Chain. According to the paper, the PoC, largely academic, assumed a scenario of transfer of ownership of a fictional asset amongst several participants, including a central authority and a regulator.
The objective was to explore “how DLT [distributed ledger technology] based systems could be configured to ensure that no party (except for the regulator) was able to infer details about transactions which they were not counterparty to, including ensuring that participants in the consensus process did not have full visibility of transaction details.” The BoE also seeks to understand “how the choice of privacy solution affected the performance of the system as well as the trade-offs, risks and challenges this presents.”
The bank said that the exercise helped is exploring the various potential approaches to the privacy challenge in DLT. Importantly, it said that cryptographic privacy solutions which keep data shared across all participants are currently in the nascent stage of development, adding that examples of their deployment at scale are limited.
The paper concluded stating, “Overall, it appears theoretically possible to configure a distributed ledger system in such a way that transactions remain private whilst keeping all data shared across the network, and at the same time maintaining a regulatory view of all transactions. However, the trade-offs would still need to be further explored, especially with respect to scalability, speed of transaction processing and risks around the security of the cryptographic techniques employed.”
