U.S. House Financial Services Committee Taskforce on Financial Technology, at "Digitizing the Dollar", heard from 2 companies in June 2021; Emtech and eCurrency. Watch the entire hearing here. The other speakers contributed thoughts and suggestions for considerations.
Emtech is heading Project New Dawn in collaboration with Hedera Hashgraph and Microsoft. They're currently engaged with the U.S. Federal Reserve, Central Bank of Bahamas, OMNI Financial of Bahamas and Central Bank of Ghana.
Ecurrency presents their own solutions for CBDC and is the announced CBDC provider for Bank of Jamaica.
Another speaker, Rohan Grey, Assistant Professor of Law, Willamette University. He talks about a digital currency landscape beyond CBDC and that agencies other than only the Federal Reserve must play a role in the development of a CBDC. He also emphasized "the right to transactional privacy and anonymity is a bedrock of political freedom and democracy, and should not be abandoned as we transition to a permanently digitally connected society".
Another speaker, Dr. Neha Narula, Director of the Digital Currency Initiative, MIT Media Lab. She urged collaboration among academic researchers and the public and private sectors and that the Treasury and the Federal Reserve should dedicate more resources to research and development. She also recommended that the government rely on the principles of open-source software development to build a consensus among a variety of stakeholders
Another speaker, Dr. Jenny Gesley, Foreign Law Specialist, Library of Congress. She recommends several things to be considered; their legal authority to issue a CBDC, compliance with AML and counter-terrorism financial regulations, effects of a CBDC on commercial banks, implications of CBDC for central bank independence, potential consequences of design technicalities and the effect on underbanked communities.
The Federal Reserve published their preconditions for a CBDC, which are: clear policy objectives, broad stakeholder support, strong legal framework, robust technology and market readiness.
Furthermore, the Federal Reserve outlines the driving forces for CBDC: Calls to address structural issues of problems affecting specific market segments or groups, Desire for innovation and Advances in technological capabilities. They also outlines the restraining forces: Robust payment ecosystem, strong banking sector, wide acceptance of banknotes, immature technology and coordination challenges.
I've researched Hedera and eCurrency side by side and, perhaps I'm biased, but I like the looks of Hedera more.
Ecurrency uses DSC3 which utilizes symmetric key cryptography. Hedera Hashgraph employs aBFT (Asynchronous Bizantine Fault Tolerance) as their consensus algorithm. Symmetric Key cryptography allows for faster transaction speeds. ABFT is more secure. With that being said, the speed of finality for Hedera Hashgraph is still fantastic and definitely well within the range of usable. You can read eCurrency's white paper here. In their white paper they compare their technology with blockchain, namely, bitcoin. The have no figures regarding their energy efficiency, tps, finality or anything. The descriptions throughout their white paper, I find to be ambiguous and not very informative. Some aspects they cover well, but it seems like a lot of it is a general overview with no details. They say they're green, energy efficient technology, with no reference to any kind of measurement on that. They say they have symmetric key cryptography with layers of security, which is leaving out a lot. They claim to be the only technology that meets the requirements for a CBDC which is arrogant. They emphasize the necessity of a private-public architecture for a CBDC, which is a kind of hybrid hedera can handle. They claim thousands of transactions per second, hedera does that and beyond. Hedera is more secure. Hedera is open source, eCurrency is not. Ecurrency seems very focused on standing next to bitcoin or other inefficient DLT's when it comes to comparing itself and their complete lack of quantities, figures, values is annoying.
On eCurrency's Website they mention ecosystem partners and big names include: AWS, Dell, DLA Piper, Bank of Ireland, among others. When I research AWS and ecurrency through google I cannot find any mention of the two collaborating whatsoever. Same with Dell. With that being said, DLA Piper is on Hedera's governing council and has integrated Hedera Token Service into it's TOKO tokenization. Seems they're more involved with Hedera than eCurrency.
With all that being said, there is more to the story.
Project Hamilton is a collaboration between MIT and the Federal Reserve where they aim to understand the opportunities and limitations of different technologies for CBDC. This is to be accomplished in multiple phases and research is said to go on for two or three years.
The first phase will involve jointly building and testing a hypothetical central bank digital currency for wide-scale, general purpose use. The objective in this phase will be to determine how to architect a scalable, accessible cryptographic platform to meet the needs of a theoretical U.S. dollar CBDC, including stringent design requirements for speed, security, privacy and resiliency.
In later phases, researchers will assess technology trade-offs by coding and testing various architectures, to see how they impact the CBDC’s design goals. The research results will be published jointly with MIT, and the code would be licensed as open-source software, so anyone can use or continue experimenting with it.
In parallel to the work with researchers at MIT, the Boston Fed will independently evaluate other systems to understand their potential pros and cons in supporting a central bank digital currency. Before any CBDC could be issued, a separate, extensive policy process would be required.
There has yet to be any mention between any platform or company and the research being conducted. The collaboration between the Federal Reserve and MIT was announced August 2020. So by Q4 2023, we should expect some results from that, at the latest. It has been said though, that as early as July 2021 they could unveil some of the digital dollar prototypes.
The Boston Fed and MIT hope to unveil some of their work in the third quarter, including at least two prototype software platforms that could move, store and settle transactions made with digital dollars. He wouldn’t say if either platform uses the blockchain technology that underlies Bitcoin and other cryptocurrencies. Once the prototypes are released, Cunha said, others will be able to see and build on the code.
I used to think Hedera Hashgraph has a low chance of being used for CBDC because it is a company provided platform and that would be the first time our government has used a companies network for ongoing digital services. Producing physical products is one thing, a digital platform that sustains ongoing operations is another. Yes, they contract out weapons technology, vehicles, electronics and other things, but they use their own banking system inside federal circles, they use their own internet service and their own phone service. But after researching, I feel a bit more hopeful that they might play a role in it. My only reservation on this is the revolving door that is Hedera's governing council. It puts the stability of the network in the hands of new people very couple years. But the group should keep each other in check so long as a bunch of them don't lose their minds. And Leemon has addressed how council members are chosen and it's well thought out so I'm not too worried about that aspect.
This is a very long post. But as far as I'm aware, it contains everything related to what's happening with CBDC and who's involved, currently as of July 8, 2021. We know we will be getting updates soon. Looking forward to it.
