In a prepared speech by Ron Berndsen of the Dutch Central Bank (De Nederlandsche Bank) at a recent conference in The Netherlands – he revealed some interesting details on the central bank’s experiments with their Blockchain experiment with a currency they call DNBCoin.
“So last year we started our DNBcoin experiment. The general idea was that by adapting the Bitcoin software ourselves we could learn deeper how an actual implementation of the Blockchain really works than if we would only perform desk research.”
“And just to avoid misunderstandings – the DNBcoin is only developed for internal test purposes, it will not be put into circulation. For the experiments, we didn’t establish a traditional steering committee with working groups, mandates and budgets; we just formed a bootstrap team of intrinsically motivated colleagues coming from different parts of the Bank. If you work on innovation, you should work in an innovative way as well.”
They adapted the bitcoin client software in two major ways and DNBcoin prototype 1 replicated the early days of bitcoin (Jan – Feb 2009) using five laptops in a connected network antheir home-made Genesis Block.
“We were able to generate a couple of thousand blocks, to enter transactions and set transaction fees. We also established that you could easily mine blocks too quickly: every 3 minutes instead of every 10 minutes like bitcoin. Reassuringly the software then issues the warning: ‘abnormally high number of blocks generated in the last four hours’.”
The second DNBcoin prototype they worked on developed the other extreme of bitcoin by jumping to the year 2140, the year when the last fraction of the 21 million bitcoins will be issued. This maximum follows mathematically from the halving of the issuance of new bitcoins every 210,000 blocks, starting from the initial reward of 50 bitcoin per block.”
“As you probably know the next halving of the bitcoin block reward – from 25 to 12.5 BTC – will take place in a couple of weeks from now. We thought that the second prototype would therefore be a so-called pre-mining variant. All DNBcoins would be mined first by only one laptop before opening the network to the other laptops. To minimize power consumption, we have started with an initial block reward of 1 billion DNBcoins in the first block and a very high frequency of halving that reward, namely every two blocks. In doing so we were able to generate 3 billion DNBcoins in 30 seconds. In addition, we observed that after all DNBcoins had been generated, blocks could still be mined and added to the Blockchain. The reward was reduced to zero but transaction fees were still collected by the miner who finds the next block.”
“These two prototypes were focused on the Blockchain as a vehicle for a virtual currency. But virtual currencies are not the most promising application of the Blockchain. So the third DNBcoin prototype will not be about a virtual currency.”
“Let me conclude. History teaches us that when looking ahead into the distant future, it is wiser to predict that something is possible, rather than that something is impossible. The Blockchain technology offers a number of advantages over existing technologies. But there are also some drawbacks and barriers to overcome. Well it is high time to finish our game of Jeopardy. The winning question I would endorse today with the answer “Blockchain” is… “Which technology for the next generation of financial market infrastructures?”