The Federal Reserve Bank of Boston has concluded its CBDC research project done in collaboration with MIT’s Digital Currency Initiative (DCI). Project Hamilton was working on developing an open-source protocol that will power the upcoming digital dollar.
Project Hamilton, a CBDC research project conducted by the United States Federal Reserve Bank of Boston in collaboration with the Massachusetts Institute of Technology’s (MIT) Digital Currency Initiative (DCI) announced its conclusion on December 23. The two-year project looked into the technical feasibility of a hypothetical central bank digital currency (CBDC) based on the U.S dollar.
According to Boston Fed Executive Vice President Jim Cunha, the “technology agnostic” project was focused on better understanding the capabilities and limitations of different technologies that might be used to manage and transfer CBDCs. “Project Hamilton took critical early steps toward a deeper understanding of how money might work better for all,” said the VP of Boston Fed.
The project, first announced in 2020, is named in honour of the first U.S Treasury Secretary and founding father of the “central bank”, Alexander Hamilton, and MIT and NASA computer scientist, Margaret Hamilton.
In February of this year, Project Hamilton published its research on two models of an open-source transaction processing software called OpenCBDC. The white paper released by the Boston Fed noted that one of the models used distributed ledger technology (DLT), but turned out to be a “less satisfactory solution” as researchers argued that the blockchain-based model was “not needed”. According to the team, the model was not suitable for the project due to its lack of performance. Project Hamilton modified the DLT architecture to assume administration by a centralised transaction processor. However, it faced performance bottlenecks after transaction throughput on the network slowed down significantly due to the central actor maintaining all transaction history.
On the other hand, the alternate non-blockchain model’s two-phase commit architecture supported a wide range of potential privacy options without central storage of transaction history. While the DLT model had a peak throughput of approximately 170,000 transactions per second, the competing model which processed transactions on multiple computers, had a peak throughput of 1.7 million transactions per second. This model also showed linear scalability with the addition of more servers.
Project Hamilton chose the non-blockchain model to power its OpenCBDC protocol upon, and is urging global contributors to continue working on its development. “OpenCBDC is a core processing engine for money that focuses on security, performance, scalability, and flexibility. It provides a codebase that supports 1.84 million transactions per second and settlement – meaning the transaction is completed – in under one second,” noted the project. After releasing its whitepaper, the project continued to work on the OpenCBDC protocol and added new functionalities, like programmability and auditing capabilities, that may be useful to evaluate a potential digital dollar. The plan is to study how those functions would impact performance, scalability and security of the CBDC.
“Our collaboration with central banks such as the Boston Fed is at the heart of DCI’s ongoing mission to serve as a neutral convener of governments, academics, open-source communities, and the private sector. We hope that this collaborative, open-source research effort is a model for researchers from academia and the public sector to build on as we explore the future of money,” said Neha Narula, Director of the Digital Currency Initiative.
Project Hamilton is expected to release its second research paper on January 12, 2023. However, the initiative has not gone down well with a few lawmakers. Nine U.S legislators, headed by Representative Tom Emmer, addressed a letter to Boston Fed President Susan Collins earlier this month. Subject of the letter was surrounding a lack of visibility into the “interactions between Project Hamilton and the private sector” during research, and expressing concerns about unfair advantages that may be awarded to the participants in future development of the digital dollar. However, the letter did not name any private companies involved with Project Hamilton, and neither did the white paper acknowledge any private participation. Emmer has been against the development of a CBDC in the United States, and introduced legislation in the Congress in January to prohibit the Fed from developing and issuing a digital currency.
MIT’s Digital Currency Initiative is gaining steam as the Bank of England (BoE) and Bank of Canada (BoC) are now working with the institute to conduct one-year research projects into the development of their respective CBDCs.