The European Central Bank is exploring blockchain technology and MPC
Date: 2024-07-12 Author: Oliver Abernathy Categories: BLOCKCHAIN
Central banks around the world are actively exploring the use of blockchain technology. The European Central Bank (ECB) is no exception. The ECB recently completed a blockchain experiment for its central bank digital currency (CBDC), collaborating with firm Zama. Zama's scientific director Nigel Smart noted that the purpose of the experiment was to explore the possibility of removing the central bank from the equation and replacing it with blockchain.
Blockchain-based liquidity matching
Liquidity matching is a banking process that reconciles financial inflows and assets with outflows and liabilities to avoid the risk of insufficient funds. According to Smart, using blockchain for this process remains a challenge, especially when multiple parties are involved in the same network. "If you have multiple entities on the blockchain and they're all encrypted, how do you do liquidity matching? It's really difficult," Smart explained.
Fully Homomorphic Encryption (FHE) technology
Smart, also a prominent cryptographer, develops Fully Homomorphic Encryption (FHE) solutions for blockchain and artificial intelligence at Zama. FHE allows you to perform calculations on encrypted data without decrypting it, which opens up new opportunities for ensuring data security and confidentiality.
In early March, Zama successfully completed a $73 million Series A funding round to further develop the FHE technology stack and provide developers with more tools to build data protection solutions.
Multiparty computing (MPC) allows multiple parties to share data for computation without revealing the actual data. According to Smart, this technology could theoretically support the entire Finnish economy. The ECB's MPC experiment has been successful, but it will take longer to support the entire European economy.
The future of MPC in the financial sector
Smart said the financial sector is actively exploring MPC technology, which could provide large financial institutions with new use cases. He noted that despite successful experiments, the implementation of MPC at the level of the entire European economy will require significant effort and time.
The ECB's experiments with blockchain technology and MPC demonstrate the desire of central banks to innovate and improve financial processes. Advances in these areas could lead to significant changes in liquidity management and data security, as well as expanded opportunities for financial institutions and entire economies.
