Dr. Craig Wright on the Bitcoin Masterclass

Building and governing CBDCs on blockchain: The Bitcoin Masterclasses #7 with Dr. Craig Wright

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We’re back talking about central bank digital currencies (CBDCs) in the seventh installment of The Bitcoin Masterclasses series with Dr. Craig Wright. What are they? What makes them any different from the money, even the digital money we all use today? How can they make our lives and businesses easier? What rules do we need to ensure everything runs smoothly? And most importantly, what sort of technological framework should a CBDC and governance system run on?

Digital currency, in some form or another, is so common these days it’s easy to forget that it would’ve seemed alien to most people just a few decades ago. Credit and debit cards got people used to the idea of it, although they weren’t themselves “digital cash.” There were some experiments, such as NatWest’s digital money (which could only be used in NatWest-associated systems) and “Millicent,” which Dr. Wright himself worked on 30 years ago.

“Currency: current money. Effectively that means money that is defined by government for payment of bills, services, etc, to the government—it doesn’t mean everyone, not like people think,” he said.

Making money digital, and spending it easier, has been a goal as long as digitization itself has existed. The difficulty has been in governance: making the rules and ensuring everyone follows them. There need to be consensus mechanisms, double-spend prevention, and interoperability, just for starters. It’s harder than you’d think, which is why digital cash took so long to invent.

Dr. Wright says CBDCs have existed since the 1950s. It’s what central banks use to interact with other banks. So that concept isn’t particularly novel either, although it’d still take some technological and cultural shifts to bring that functionality to the masses for daily use.

Governance and ‘sovereign nodes’

From here, Dr. Wright goes on what appears to be a tangent, but is actually the main point of the introduction: governance. Governance is the rules on which systems like CBDCs and digital cash must be based (and followed by all). This is also more challenging than it looks. How do you make sure the rules stay constant, and that they aren’t easily changed by the wealthy and influential?

Software has versions, and nodes/users can accept or reject the rules based on what they recognize. Id software made its own version of TCP to make Doom run better, but that didn’t mean all web browsers had to recognize it.

Then there’s proof-of-work (PoW, on which Bitcoin runs) and proof-of-stake (PoS, like the new Ethereum protocol). Do these help? As Dr. Wright points out, these are not meant to be voting mechanisms on the rules as both are vulnerable to “Sybil attacks” that can swing votes in different directions. He refers to cloned nodes on AWS that suddenly appeared to vote on changes to BTC, like SegWit. PoS is inherently a system where more money literally buys more voting power—which isn’t great for the 99% of ordinary, non-voting users. This simple fact is often overlooked in articles touting PoS’s so-called environmentally-friendly credentials.

Who and what sort of system do we want to make the rules for CBDCs and our money? How changeable should those rules be? And remember, there are also ~200 different countries in the world and almost as many central bank—so no two are likely to be the same. The Bank of England operates completely differently from the U.S.’s Federal Reserve System, though both are considered central banks.

The rest of The Bitcoin Masterclasses #7 explores these issues in more detail and what sort of functionality a CBDC could have. There’s automation, ties to other digital records, easy tax payments, and more. There are also the much-dreaded privacy implications, why they may or may not be serious problems, and how to protect personal information. Stay tuned for the remaining presentations in the series on this very-current currency topic.

A recording of this session and all of Day 1 of The Bitcoin Masterclasses # 7 is available at this link. You can also view all previous Bitcoin Masterclasses seasons on the CoinGeek YouTube channel.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

Watch: How CBDCs on Bitcoin should work

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New to blockchain? Check out CoinGeek’s Blockchain for Beginners section, the ultimate resource guide to learn more about blockchain technology.