The U.S. Federal Reserve published details about a 2019 payments trial involving distributed ledger technology, specifically the Hyperledger Fabric blockchain software.
The results were released alongside news that the Fed, the U.S. central bank, is partnering with the Massachusetts Institute of Technology on a multi-year effort focused on central bank-issued digital currencies or CBDCs. In statements, Fed governor Lael Brainard spoke about the Fed's work in this area to date, pointing to work conducted by researchers at the Federal Reserve Bank of Boston.
According to yesterday's test release, the so-called "FooWire" experiment was designed to test whether the technology is suited for payments application. As the team noted:
"The team built the system using Hyperledger Fabric, a popular DLT platform, because it generally met the team's design requirements of a closed network, mature technology, and enterprise readiness. The experiment highlighted the potential of DLT for certain payment uses, the quick speed with which a system could be implemented, the potential simplicity of smart contracts, and the range of functionality offered by such platforms. It further highlighted the need for more experimentation to better understand the possibilities for wide-scale adoption and use of any DLT platform for payments."
FooWire was described as "small-scale" and specifically focused on permissioned capabilities — that is, a system in which only select participants are allowed to transact. Such an approach "mirrors what is in use today for most payment systems and, in some configurations, offers greater network security than a permissionless network," according to the write-up.
"At the outset, the network included three hypothetical organizations: a central bank, a government agency, and a commercial bank. Network administrators were responsible for approving and creating accounts and nodes to administer the ledger. The only asset that could be transferred between nodes was an artificial asset called 'Funds,'" the Fed team explained.
Ultimately, the group found that "Fabric and similar DLT platforms have potential payment uses," but stressed that more work is to be done in this area. "The Federal Reserve continues to research the capabilities of such technologies and to identify risks and weaknesses associated with their use."