Boston Federal Reserve: Planning to design blockchain supervision nodes to monitor capital flows and settlements between different banks

According to Coindesk's May 11 report, the Boston Federal Reserve in Massachusetts, USA, will begin a new blockchain experiment this summer.

It is reported that the Boston Federal Reserve is one of the earliest and most involved government agencies involved in blockchain technology. Since 2016, the state's regulators have been quietly developing blockchain systems, but it has barely disclosed any related plans.

Federal_Reserve_from_South_Boston (Source: WikiMedia )

Now, the first experiment in the Boston Federal Reserve has been rewarded, and the agency published a white paper on the proof of concept for Ethereum and Hyperledger Fabric. Paul Brassil, vice president of the Federal Reserve Information Technology Department in Boston, said the Boston Federal Reserve is ready for the next phase of work.

The team will study the possibility of establishing a “supervisory node” (a regulatory tool that can connect to various bank blockchains in the future). Jim Cunha, senior vice president of the Federal Reserve in Boston, said the node would monitor the flow of funds and settlements between different banks:

If you look to the future, there may be some blockchains that will support the securities business, some support the derivatives business, some support cash or interbank transfers, then as a regulator, how do you use different technologies to observe traffic on all platforms? What?

Cunha added that the Boston Federal Reserve does not look at these explorations from a policy perspective and will work with the Fed on these rules. The monetary authorities must be able to keep up with the development of technology:

We are surrounded by very large financial institutions and banks, and we all know that they are experimenting with blockchain technology. So if we can work with them more and understand their roadmap, we can know if we are heading in the right direction.

The Boston Federal Reserve first set the relevant agenda to determine the main direction of the trial, and the full work will begin as early as this summer. Cunha said that there are no plans to publicly announce the project:

We currently have very little research on it, so our next goal will be some practical issues, such as studying what the audit node looks like, what kind of data we should access, how to interact, how to update the node, what kind of need to write The code stores information about the flow of funds so that users can analyze the flow of funds. We really started from scratch.

Brassil said that in the future we may see multiple blockchains in different banking institutions, so the federal savings deposits should have "a wide enough technical capability to cover all platforms."

“Starting a business in the basement”

The Boston Federal Reserve began using Ethereum in 2016 to conduct related technical tests on blockchain. At the time, the agency did not have a dedicated blockchain developer, and all programmer teams had to self-learn by watching related videos on YouTube. Cunha and Brassil called this experience "basement entrepreneurship."

During this period, developers of the Boston Federal Reserve attempted to place depository institutions' balances under the blockchain supervision of the Boston Federal Reserve and plan to create simulated transactions (a back-office model supported by blockchain). They tested on the Ethernet blockchain and tested it on the Hyperledger Fabric. Finally, the Hyperledger Fabric is considered a more appropriate choice.

The reason why the Boston Federal Reserve chose Hyperledger Fabric was because, for government entities, a licensed blockchain was a better choice. Second, if you choose to use the Ethereum blockchain, continuous supply of gas may complicate regulatory tasks and limit speed.

The white paper states:

The time it takes to create a block is longer than the time the program's real production environment can tolerate.

Cunha said that the blockchain back office project is now on hold and the "supervisory node" trial is underway, so the Boston Federal Reserve is hiring some professionals to strengthen the blockchain test.

He said:

We are trying to add something more powerful internally, and we need more dedicated resources. However, the new blockchain team will not be large.

In addition, the Boston Federal Reserve is actively negotiating with other monetary authorities, but Cunha and Brassil are reluctant to disclose information about these institutions. Despite this, they are very happy to share this project.

Cunha said:

We have to share information because the entire industry needs to educate itself.