The Federal Reserve Bank of Boston cares about the future of blockchain, and here’s why.
In the 1990s, the Boston Fed employed over 400 people just to cash paper checks. “Today all those jobs are gone,” said Paul Brassil, the bank’s vice president of information technology and head of IT innovation strategy.
Speaking at the recent Forrester New Tech & Innovation 2018 Forum in Boston, Brassil said technology is as disruptive to the nation’s central banking system as it is to other industries. Formed by Congress in 1913 to provide a safer and more stable monetary and financial system, the quasi-governmental Federal Reserve not only conducts the nation’s monetary policy and supervises the nation’s banks, it also plays a major role in U.S. payment and settlement systems. The latter are some of the largest retail and wholesale payment platforms in the world — and they have changed over time. Distributed ledger technology could represent a big change.
“The Fed needs to look forward to how we might be Uberized,” Brassil said, adding the central bank should not think of itself as a government-backed monopoly. “If the private sector can do it better than the Fed, we need to be aware of it.”
Grappling with the future of blockchain
With that caution in mind, the Boston Fed launched a blockchain project in 2016. One of 12 banks in the central banking system, Boston has a long tradition of researching monetary policy, Brassil said, taking advantage of resources at Harvard and MIT. This project not only explores what blockchain may look like 10 years down the road — its impact on everything from credit and mobile payments to bringing banking to underserved markets — but is also hands on.
“We’re building a proof of concept around Hyperledger Fabric,” Brassil said, referring to the open source blockchain platform operated by the Linux Foundation and is being commercialized by IBM, Oracle, Microsoft and others.
His team is building a non-mission-critical app for employee appreciation rewards. “We want to plug that into our environment to see what the 24/7 challenges are when running this platform.
If the future of blockchain involves banking, IT leaders need to know what the risks are, Brassil said. “Are we going to have storage issues, issues with smart contract development, cyber risks?”
Fed role in future of blockchain?
Another aim is more far-reaching: Namely, if and what kind of supervisory role the Fed might play in a potential “spiderweb of banks” doing transactions over a massive blockchain environment.
In a mark of how fluid the blockchain platform market is now, the Boston Fed’s initial work was done on open source Ethereum, because it was the first decentralized platform to use smart contracts, a computer program that directly controls the transfer of digital currencies or assets between parties under certain conditions.
A “pivotal trip” to the Bank of England and learning about the adoption of Hyperledger Fabric by European central banks changed that.
Brassil said his team intends to publish a white paper on the project by the end of the year.