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This new line of research has sparked some controversy at DCI; After all, many researchers out there are interested in cryptocurrency as it removes the need for banks or government currencies. But Narula has found a way to bring crypto enthusiasts to the table with central bankers about what lessons Bitcoin could hold for the design of a bank-backed digital currency.
Narula sees the DCI as neutral territory. “These worlds are very different, the world of cryptocurrency and the world of central banking,” he says. “We see ourselves partially as a bridge.”
It is not always easy. “There is real tension,” says Shira Frank, strategic consultant at DCI.
When Frank first started researching digital currency in 2018, he felt that cryptocurrency had become so toxic and worried that the technology might be unrecoverable. He remembers thinking, “He’s going too far in the wrong direction.”
But Narula told Frank that cryptocurrency still has untapped potential, and much of its toxicity is due to a widespread failure to predict the most negative outcomes amid its hasty evolution. Narula says we’re currently dealing with what we’ve achieved with this poor planning, but we can use what we’ve learned from crypto mistakes to design new digital currencies that can better serve people.
Narula says the Bitcoin research helped his team answer fundamental questions about other cryptocurrencies and CBDCs. He says it’s possible to design a CBDC that will work “often the most disadvantaged” by the current monetary system. When implemented properly, it can help reduce the bureaucracy around social support programs or eliminate the fees that unbanked people often have to pay to access their cash.
Earlier this year, Project Hamilton released a fast payment processor design capable of processing 1.7 million transactions per second, apparently paving the way for the US to launch a CBDC. Then, in March, President Joseph Biden issued an executive order to step up CBDC research to keep America ahead of other countries in the fintech race.
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Biden expects a technical assessment of what it will take to design a CBDC by September, and Project Hamilton will inform that policy. The United States is not the only country turning to DCI; Narula said the group has recently started advising other countries on CBDCs as well. There are still unanswered questions when it comes to adopting them, he adds.
Narula’s biggest concern for any new digital currency is ensuring that it protects user privacy, whether it’s a CBDC or a cryptocurrency. It’s watching what happens to China’s CBDC, which is currently used to process billions of dollars. Experts pointed out that China may eventually tie it to the country’s social credit system (which uses its citizens’ financial data to measure their credibility), which could drastically increase social monitoring in that country and provide new levels of control to the government. It can even block citizens from accessing their own money in response to social media posts.
Nobody knows how everything will turn out. However, Narula plans to stand by the glowing Bitcoin sign in the DCI office to help guide this new future. “We want to understand the implications of different technology designs,” he says, because whether it’s ready or not, “money really changes.”
Ashley Belanger is a freelance science journalist based in Chicago..
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