The Bank of England has been looking into how distributed ledgers can be configured to enable privacy amongst participants whilst keeping data shared across a network and enabling regulators to view all transactions.
The central bank worked with blockchain startup Chain on an academic, rather than practical, proof-of-concept designed to square the tradeoffs between privacy, performance and resilience when using distributed ledger systems.
The partners developed a scenario which assumed the transfer of ownership of a fictional asset amongst several participants, including a central authority and a regulator. The central authority would have the ability to issue new units of the assets as well as retire units, and grant access to participants to use the ledger, and the regulatory authority would have the ability to view all transactions.
Concludes the bank: "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."