Overview of Project Hamilton
The Federal Reserve Bank of Boston, in collaboration with the Digital Currency Initiative at MIT, embarked on a journey to explore the complexities of a central bank digital currency (CBDC) through its research initiative, dubbed Project Hamilton. Launched in 2020, this project aimed to leverage both existing and pioneering technologies in developing a hypothetical digital currency platform.
The Two Models Tested
Two models emerged from this research, each showcasing unique features and challenges:
- Ordered Ledger Model: This architecture utilized an ordering server to manage transactions, ensuring they are neatly organized into blocks. The results? A whopping 99% of transactions processed in under two seconds—impressive, right? But hold your horses, because there were some serious drawbacks. The centralization here led to performance bottlenecks and reliance on a single actor to maintain transaction history.
- Parallel Processing Model: Here, transactions were processed simultaneously across multiple computers. This model shone with a throughput of 1.7 million transactions per second and most completed in under half a second. However, as fast as it was, it couldn’t maintain an ordered history for all transactions, reminding us that speed without order can lead to chaos!
The Downside of Distributed Ledger Technology
It turns out that while the idea of a distributed ledger sounds flashy and revolutionary, it comes with its own set of headaches. The researchers concluded that a distributed architecture managed by various actors wasn’t as necessary as they initially believed. Instead, the focus should be on ensuring scalability while navigating the complexities of transaction history and performance.
Lessons and Implications
According to Jim Cunha, Boston Fed’s executive vice president, understanding these technologies is crucial for anyone looking to implement a CBDC. The findings from Project Hamilton emphasize that while the underlying tech can enhance scalability, it must also address the practical challenges of a central bank payment system. Neha Narula from MIT echoed these sentiments, stressing that several hurdles remain before we can confidently adopt a CBDC in the United States.
Conclusion: The Road Ahead
As research around CBDCs continues to unfold, it’s clear that while we’re racing toward a digital currency future, the journey is peppered with challenges that require careful navigation. The exploration led by Project Hamilton not only sheds light on potential architectures but also paves the way for future discussions on the feasibility and framework of a central bank payment system.
