An official from the Dutch central bank has recently provided details on the experiments conducted to better understand the working of the blockchain technology.

Speaking at the Dutch Blockchain Conference, Ron Berndsen of De Nederlandsche Bank (DNB) said that the bank is interested in blockchain as the technology may have implications for the overarching goal of financial stability.

In order to understand how an actual implementation of the blockchain really works, the DNB started DNBcoin experiment last year. Berndsen, however, clarified that DNBcoin is only developed for internal test purposes and will not be put into circulation.

He explained that the experiment involved adapting the bitcoin client software in two major ways:

DNBcoin prototype 1: It replicated the early days of bitcoin (Jan – Feb 2009). Berndsen said that they were able to generate a couple of thousand blocks, to enter transactions and set transaction fees. Also, they found blocks could be mined “too quickly” – every 3 minutes instead of 10 minutes like bitcoin.

DNBcoin prototype 2: It took the other extreme of bitcoin by jumping to the year 2140, when the last fraction of the 21 million bitcoins will be issued. Calling it as “pre-mining variant”, Berndsen explained that all DNBcoins would be mined first by only one laptop before opening the network to the other laptops. In order to minimize power consumption, they have started with an initial block reward of 1 billion DNBcoins in the first block and a very high frequency of halving that reward, namely every two blocks.

Berndsen said that they were able to generate 3 billion DNBcoins in 30 seconds. Also, they found that after all DNBcoins had been generated, blocks could still be mined and added to the blockchain. The reward was reduced to zero but transaction fees were still collected by the miner who finds the next block.

“These two prototypes were focused on the blockchain as a vehicle for a virtual currency. But virtual currencies are not the most promising application of the blockchain. So the third DNBcoin prototype will not be about a virtual currency”, he said.

He indicated that the direction for the third DNBcoin prototype will include properties such as ownership of a certain digital asset, trust, resilience of the network is crucial and adding intelligence to initiate or trigger transactions.

In conclusion, Berndsen said, "History teaches us that when looking ahead into the distant future, it is wiser to predict that something is possible, rather than that something is impossible. The blockchain technology offers a number of advantages over existing technologies. But there are also some drawbacks and barriers to overcome."