The mBridge project for cross border CBDC payments is planning to go into production next year. Payments will use wholesale central bank digital currencies (CBDC) from Thailand, Hong Kong, China and the UAE. It could be a major threat to SWIFT in the future. Each country has a particular role, and China’s is around technology. Yesterday the Chinese press reported that mBridge’s blockchain consensus protocol was replaced with a new homegrown one.
Last year’s mBridge report clarified that the blockchain is a bespoke one, but it builds on several known pieces of technology. For example, it uses Ethereum’s Solidity smart contract language and the Ethereum Virtual Machine. When the report was published it said it used the well known consensus protocol HotStuff+. However, it stated in the future it might consider a new consensus mechanism, Dashing.
According to the Chinese press, the Dashing Protocol designed for permissioned blockchains has now been deployed on mBridge to improve efficiency. It’s claimed that in a 91 node test, the performance is improved tenfold. Apparently the results were provided to the Swedish and French central banks who are observers of the mBridge project. Apart from mBridge, Dashing is used on the central bank’s blockchain trade finance network
The protocol was developed by China’s central bank Digital Currency Research Institute with Tsinghua University and other universities. Tsinghua University’s Wang Xiaoyun said, “The Dashing Protocol is completely based on independent design and independent research and development.”
Does it solve the Blockchain Trilemma?
A well known concept is the Blockchain Trilemma. This asserts that three desirable blockchain features are decentralization, security and scalability. Generally making one aspect stronger will weaken another. For example, it’s possible to make a blockchain more scalable and performant by reducing security.
The Dashing Protocol achieves high scalability and low latency. At the same time, it also claims to achieve security.
We noted that the Chinese press discussion of the Dashing Protocol replaces the trilemma with a solution to the ‘four-party problem’: high security, high scalability, high throughput and low latency.
So how does Dashing achieve this?
At the core of blockchain consensus mechanisms is cryptography based on security certificates. Generally the stronger the certificate the more computer power needed, and the slower the performance. Dashing uses weak certificates wherever viable to improve performance. However, in some instances, it uses strong certificates. Hence its security claims.
You may have heard of blockchain 51% attacks. In other words, someone can corrupt a blockchain by influencing more than 51% of the validators. In fact, Ethereum staking requires a higher quorum of more than two thirds.
Dashing adapts in this area as well. In some circumstances it allows a weak quorum of just a third. But for final decisions, it requires a strong quorum of more than two thirds.
We’d leave it up to technologists to test the protocol. However, a key question is how comfortable other central banks will be with relying on a novel protocol versus a battle hardened one. Yesterday one of the Governors of the US Federal Reserve noted she’d be uncomfortable deploying central bank money on a platform the central bank doesn’t control.
