A ledger especially for Central Bank Digital Currencies
A recent survey by the Bank for International Settlements found that more than 80% of the world’s central banks are already looking at CBDCs. Ripple wants to tap into this sector by offering “a secure, controlled and flexible solution” for the issuance and management of CBDCs.
Central banks can theoretically use some of the existing blockchains for their CBDC projects. Ripple noted that most blockchains won’t be able to provide the kind of throughput needed.
After all, a successful retail CBDC requires a huge number of transactions. Also, most blockchains are public ledgers open to all users. They are updated by a wide variety of validators, which is not ideal for CBDCs, Ripple argued.
A central bank needs more transaction privacy and control over its currency than a public ledger can provide. Therefore, the bank will most likely choose to create a CBDC on a private ledger that can also operate at the same scale, the company further explained.
Advantages of a private ledger
Ripple therefore plans to provide central banks with its own version of a private CBDC-focused ledger. It mainly offers fast speeds and scalability. But it also provides interoperability with existing global financial infrastructure and other digital assets.
The CBDC Private Ledger is based on the same blockchain technology as the XRP Ledger (XRPL). It is also primarily designed for payments.
Moving money on the private ledger will be cost effective, reliable and almost instantaneous. Transactions can also take place with volumes required by central banks. The CBDC Private Ledger will initially handle tens of thousands of transactions per second (TPS). It has the potential to scale up to hundreds of thousands of TPSs over time.
For this purpose, the consensus protocol is “less expensive and 61,000 times more efficient than public blockchains that use proof-of-work,” the company said. This protocol is used in both the XRPL and the CBDC ledger.
The recent Federal Reserve Bank of New York research suggested that CBDCs have more potential for privacy than their private sector counterparts. Meanwhile, several CBDC pilots are already underway in countries such as China, Russia, France, Canada, South Korea, Brazil, Japan, Thailand and many more.