Central Bank of Italy Unveils New DLT Protocol for Bitcoin, Confidential Validator ConfidentialityGodfrey Benjamin31. July 2024
Italian Central Bank Announces New DLT Protocol for Bitcoin, Enhancing Validator Confidentiality
Godfrey Benjamin 31. July 2024
The Bank of Italy is looking for a permitted blockchain based on Bitcoin.
Financial institutions are exploring alternative algorithms such as FBFT and FROST.
The Central Bank of Italy recently delved into distributed ledger technology (DLT) and announced a new consensus protocol adaptable to Bitcoin (BTC). With this development, banks aim to maintain the confidentiality of authorized participants called validators by leveraging the intrinsic properties of DLT.
The Central Bank of Italy will focus on Bitcoin's DLT protocol
The Central Bank of Italy shared plans to create a licensed version of BTC in a research paper published on Tuesday. Rather than developing something entirely new from scratch, banks are focusing on Bitcoin, an established and widely used open source DLT platform.
“In an authorized setting, we can inherit the huge ecosystem of knowledge and applications developed for Bitcoin's core infrastructure over the past 10 years,” the paper said. The bank highlighted lighting networks as a promising development in the digital payments domain. However, the researchers said there are challenges with Bitcoin because it was not designed for permitted settings.
Achieving consensus is resource intensive in an unauthorized environment because the validator's identity is unknown. Validators must demonstrate their completeness using either large amounts of computational power, proof of work (PoW), or substantial financial capital, proof of stake (PoS).
Meanwhile, consensus can be achieved without requiring extensive resource commitments in an authorized environment. In this context, Proof-of-Authority (PoA) is sometimes used when a set of known verifiers participate in a consensus. This served as the foundation for the Bank of Italy for BTC's DLT protocol.
Exploring alternative algorithms
As revealed in the paper, other algorithm protocols have been introduced to enhance ledger security against fraud and attacks and ensure the confidentiality of validators. Specifically, the Frosted Byzantine Fault Tolerance (FBFT) protocol was introduced as an innovative approach to PoA.
The protocol combines a practical Byzantine fault tolerance (PBFT) algorithm with a flexible round optimized Schnorr threshold (FROST) signature scheme recently discovered in cryptography research.
According to the paper, the researchers incorporated the FBFT protocol into blockchain code like Bitcoin and succeeded in converting consensus components into an authorized environment. Additionally, performance tests were carried out in a variety of geographically dispersed realistic scenarios.
Meanwhile, Italian researchers plan to perform various additional Bitcoin exploration tasks in addition to the consensus protocol. In the future, we plan to explore layer 2 (L2) payment channel networks and payment privacy. Also, they want to investigate asset tokenization for cross-border payments and deliveries rather than payments.
According to Bitcoin, which is the main focus of the experiment, the coin fell 0.2% over the past day and traded at $66,134. Trading volume also declined by 28% to $27 billion.
Central banks exploring blockchain technology
In particular, the Bank of Italy is not the first central bank to work extensively on blockchain technology. For example, the People's Bank of China has created a customized blockchain based on Ethereum through the Digital Currency Research Institute.
A recent update covered that the Central Reserve Bank of Peru (BCR) is exploring the development of a digital currency. The bank partnered with Viettel Peru, a company skilled in telecommunications and digital services, to pilot the development.
Godfrey Benjamin 31. July 2024
The Bank of Italy is looking for a permitted blockchain based on Bitcoin.
Financial institutions are exploring alternative algorithms such as FBFT and FROST.
The Central Bank of Italy recently delved into distributed ledger technology (DLT) and announced a new consensus protocol adaptable to Bitcoin (BTC). With this development, banks aim to maintain the confidentiality of authorized participants called validators by leveraging the intrinsic properties of DLT.
The Central Bank of Italy will focus on Bitcoin's DLT protocol
The Central Bank of Italy shared plans to create a licensed version of BTC in a research paper published on Tuesday. Rather than developing something entirely new from scratch, banks are focusing on Bitcoin, an established and widely used open source DLT platform.
“In an authorized setting, we can inherit the huge ecosystem of knowledge and applications developed for Bitcoin's core infrastructure over the past 10 years,” the paper said. The bank highlighted lighting networks as a promising development in the digital payments domain. However, the researchers said there are challenges with Bitcoin because it was not designed for permitted settings.
Achieving consensus is resource intensive in an unauthorized environment because the validator's identity is unknown. Validators must demonstrate their completeness using either large amounts of computational power, proof of work (PoW), or substantial financial capital, proof of stake (PoS).
Meanwhile, consensus can be achieved without requiring extensive resource commitments in an authorized environment. In this context, Proof-of-Authority (PoA) is sometimes used when a set of known verifiers participate in a consensus. This served as the foundation for the Bank of Italy for BTC's DLT protocol.
Exploring alternative algorithms
As revealed in the paper, other algorithm protocols have been introduced to enhance ledger security against fraud and attacks and ensure the confidentiality of validators. Specifically, the Frosted Byzantine Fault Tolerance (FBFT) protocol was introduced as an innovative approach to PoA.
The protocol combines a practical Byzantine fault tolerance (PBFT) algorithm with a flexible round optimized Schnorr threshold (FROST) signature scheme recently discovered in cryptography research.
According to the paper, the researchers incorporated the FBFT protocol into blockchain code like Bitcoin and succeeded in converting consensus components into an authorized environment. Additionally, performance tests were carried out in a variety of geographically dispersed realistic scenarios.
Meanwhile, Italian researchers plan to perform various additional Bitcoin exploration tasks in addition to the consensus protocol. In the future, we plan to explore layer 2 (L2) payment channel networks and payment privacy. Also, they want to investigate asset tokenization for cross-border payments and deliveries rather than payments.
According to Bitcoin, which is the main focus of the experiment, the coin fell 0.2% over the past day and traded at $66,134. Trading volume also declined by 28% to $27 billion.
Central banks exploring blockchain technology
In particular, the Bank of Italy is not the first central bank to work extensively on blockchain technology. For example, the People's Bank of China has created a customized blockchain based on Ethereum through the Digital Currency Research Institute.
A recent update covered that the Central Reserve Bank of Peru (BCR) is exploring the development of a digital currency. The bank partnered with Viettel Peru, a company skilled in telecommunications and digital services, to pilot the development.
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