Bitcoin’s rise to prominence could be short lived after the creation of a new cryptocurrency developed by the Bank of England and computer scientists.
Known as RSCoin, the proto-currency would have the potential to flip the model by which Bitcoin operates, namely that Bitcoin is not state owned whereas RSCoin would be a state controlled tool.
This means that the central bank would be able to keep control of the supply of money. Should RSCoin take off then Bitcoin’s potential as a currency for banks would be unlikely.
Microsoft delivered a second blow to Bitcoin lovers with the decision to stop accepting it within the Microsoft Store.
Only in 2014 did Microsoft strike a deal with Bitpay to allow Bitcoin payments in the Windows Store, however, it seems that despite there being some early enthusiasts, there has been little uptake of it.
Microsoft simply said on its site: "You can no longer redeem Bitcoin into your Microsoft account. Existing balances in your account will still be available for purchases from Microsoft Store, but can’t be refunded."
This doesn’t mean an end to relationships between Microsoft and the cryptocurrency. The company has created a blockchain-as-a-Service offering in Azure.
Troublingly for Bitcoin, it seems that tech companies and financial organisations are looking to use the basis of the cryptocurrency, but are trying to develop it in a way that favours state control.
University College London for example, the ones behind the development of RSCoin, was encouraged last year by the Bank of England to create a different version of the digital currency.
UCL delivered its findings to the Network and Distributed System Security Symposium in San Diego where Dr George Danezis, who is working on the design, said that a national pilot project could be up and running within eighteen months if a scheme was launched.
Bitcoin has faced problems with issues such as block size, low adoption rates as a result of poor mobile support, trust and bad actors in addition to the fact that is has a limit of 21 million, which is expected to be reached by 2140.
RSCoin meanwhile already has the backing of the central bank, which means that the trust factor is already to some extent overcome. It can also scale up indefinitely, according to its developers.
Ben Broadbent, the Bank of England’s Deputy Governor, has said in the recent past that it is "very unlikely that, to any significant extent, we’ll ever be paying for things in Bitcoins, rather than pounds, dollars, or euros."
However, Broadbent has also said that a distributed ledger currency could widen the balance sheet of a bank and could be used to cover government services, tax collection and benefit payments.
The real appeal of Bitcoin is the distributed ledger function and it is this that banks are looking at exploiting with various blockchain technologies.
Bitcoin may be out but the blockchain technology that it is built on is still of great interest to banks. Barclays, HSBC, JP Morgan and other global banks were recently part of a 40 strong group trialling blockchain in cloud tests.
These tests were focused on smart contracts but it is becoming increasingly clear that banks are looking to accelerate blockchain technology that they can develop to their advantage.
This article is from the CBROnline archive: some formatting and images may not be present.