Centrally Banked Cryptocurrencies
This addresses scalability issues for cryptocurrency users and systems, offering a hybrid approach that is incremental in combining centralization with distributed elements.
The paper tackles the scalability and computational cost limitations of decentralized cryptocurrencies like Bitcoin by introducing RSCoin, a framework where central banks control monetary policy but rely on distributed authorities to prevent double-spending, resulting in elimination of wasteful hashing and a scalable system.
Current cryptocurrencies, starting with Bitcoin, build a decentralized blockchain-based transaction ledger, maintained through proofs-of-work that also generate a monetary supply. Such decentralization has benefits, such as independence from national political control, but also significant limitations in terms of scalability and computational cost. We introduce RSCoin, a cryptocurrency framework in which central banks maintain complete control over the monetary supply, but rely on a distributed set of authorities, or mintettes, to prevent double-spending. While monetary policy is centralized, RSCoin still provides strong transparency and auditability guarantees. We demonstrate, both theoretically and experimentally, the benefits of a modest degree of centralization, such as the elimination of wasteful hashing and a scalable system for avoiding double-spending attacks.