Project Hamilton Phase

Project Hamilton Phase 1: Exploring the Future of Central Bank Digital Currency

In response to the growing innovation in money and payments, central banks worldwide are investigating the potential of central bank digital currencies (CBDCs). CBDCs represent a new form of central bank money, complementing existing reserve account balances and physical currency. They could be designed in various ways to meet different objectives, such as enhancing financial inclusion, improving payment efficiency, fostering financial services innovation, maintaining financial stability, and promoting privacy.

Technical Design Exploration

The Federal Reserve Bank of Boston (Boston Fed) and the Massachusetts Institute of Technology’s Digital Currency Initiative (MIT DCI) have launched Project Hamilton, a multi-year research project aimed at exploring the technical challenges and opportunities of CBDC design. Phase 1 of Project Hamilton focuses on creating a core transaction processor capable of handling the high demands of a large-scale retail payment system. The primary goals include achieving robust speed, throughput, and fault tolerance while also providing a flexible platform for future research.

Phase 1 Achievements

Core Transaction Processor

In Phase 1, the project designed and tested a modular, extensible transaction processing system across two distinct architectures. The processor’s baseline requirements included a time to finality of less than five seconds, throughput exceeding 100,000 transactions per second, and fault tolerance across wide geographic areas.

Key Design Features:

• User Interaction: Users interact with the central transaction processor through digital wallets storing cryptographic keys. Funds are addressed to public keys, and transactions are authorized through cryptographic signatures.
• Transaction Processing: The processor validates transactions and updates the set of unspent funds without requiring personal user data.
• Architectural Approaches: The first architecture uses an ordering server to batch and order transactions, achieving 170,000 transactions per second with a durable completion time under two seconds. The second architecture processes transactions in parallel across multiple computers, achieving a throughput of 1.7 million transactions per second with the majority completing in under half a second.

Learnings and Future Directions

Phase 1 revealed several important insights into CBDC design:

• Cryptography and Distributed Systems: Incorporating concepts from cryptography and blockchain technology can enhance functionality and performance. However, a distributed ledger managed by multiple actors is not necessary for a CBDC under a central actor’s control.
• Modular Design: Separating transaction processing into modular components improves scalability and flexibility.
• Innovative Features: A CBDC can offer new functionalities not possible with cash or traditional bank accounts, such as cryptographic proofs of payment and complex transfer authorizations.

Next Steps: Phase 2

In Phase 2, Project Hamilton will delve into additional functionalities and alternative designs, including:

• Privacy and Auditability: Exploring cryptographic designs to balance privacy with auditability.
• Programmability: Investigating smart contracts and other programmable features.
• Offline Payments and Security: Ensuring secure issuance, offline payments, and resilience against denial-of-service attacks.

Through continued research and open-source collaboration, Project Hamilton aims to provide deeper insights into the technical considerations and tradeoffs involved in developing a core processing engine for a CBDC. This research will complement existing work by central banks, informing future policy and economic decisions.

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