UK central bank to support blockchain with RTGS service

The Bank of England plans to ensure the next generation of its Real-Time Gross Settlement (RTGS) service is compatible with blockchain, the technology underpinning virtual currencies such as Bitcoin.

RTGS is the platform used to process interbank transfers. The UK’s central bank is consulting on the development of a new iteration of the service, designed to enable innovation within a rapidly changing payment ecosystem.

Reviews with current and potential future users of the service have indicated that the revamped version should be capable of interfacing with a range of technologies being used in the private sector, including distributed ledgers — also known as blockchain — the bank said.

A consultation paper on the RTGS project states that while distributed ledgers were originally designed to obviate the need for banks, there are a number of potential advantages to using the platform for banking applications.

The bank said that distributed ledgers have the potential to reshape the future payment landscape, and so the new RTGS system will be designed to support the level of operability and scale that may be required to support future transactions.

Distributed ledgers could potentially be used as a possible platform for core RTGS settlement, as a platform for externally managed securities settlement or foreign exchange services, or as a platform for a digital currency that might need to interoperate with the platform, the report states.

“Three key potential benefits of distributed ledgers are trust, resilience and shared state. The trust arises from the consensus required to update the ledger, the resilience from the geographical and technical diversity of the network, and the shared state from being able to prove that a node is up to date.”

Of these, the main potential benefit for the RTGS is resilience, due to the potential to enable full data duplication across the network and to distribute nodes that may run differing software implementations.

“The research conducted so far in the bank and elsewhere shows that asset transfer and gross settlement can successfully operate on a distributed ledger, and demonstrates many of the features of network resilience in a small-scale application,” the report states.

“In its current state, however, this work has also highlighted that the technology is not sufficiently mature to provide the exceptionally high levels of robustness required for RTGS settlement.”

Further work must therefore be conducted to address issues including system scalability and privacy, the report adds.

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