Colu Open-Sources Protocol to Help Central Banks Issue Digital Currencies

VC-backed startup Colu is open-sourcing its banking infrastructure known as Bankbox in an effort to remove the technical barriers and reduce costs for central banks that want to issue digital currencies.

The Israeli firm’s technology was previously based on the bitcoin blockchain, but the company is overhauling its approach for its Colored Coins initiative, evolving into a more blockchain-agnostic platform.

Mark Smargon, vice-president of blockchain and co-founder of Colu, told CoinDesk he envisions a world of multiple ledgers for different use cases. He described Bankbox as a "business logic layer that’s capable of plugging into several different blockchains".

Specifically, Bankbox lets digital currency issuers and custodians issue currencies, verify asset credentials, track assets and fund wallets.

Smargon said:

"What we decided to do is take in everything we’ve built in the back-end, open-source it and really focus – not on the ease of issuance, which is already a good tool we have – but on installing a node and running a node."

To help enable that functionality, issuers and custodians will now be able to handle customer funds on an external, shared ledger that has been cryptographically signed by the customer, providing proof of identity to regulators.

Colu's open-sourcing of the protocol is part of a growing industry trend which aims to increase adoption among digital currency issuers by making blockchains more accessible to traditional banking institutions.

Central bank adoption

Also announced today, Colu, which has raised $12.1m in venture capital, revealed Bankbox already has a central bank user.

Barbados-based digital asset exchange Bitt is deploying Bankbox for the issuance of a digital Barbadian dollar on the bitcoin blockchain, partnering with the Barbadian central bank to do so.

"[Bitt] uses the protocol to provide the regulatory proof of how much currency they issue to the regulator. The currency is tracked on the blockchain so you can have a proof of reserve," explained Smargon.

The broader protocol would allow central banks to carry out their monetary policies more effectively, he said, adding:

"You can, in the future, provide a proof of solvency, you can allow different central banks to interact with each other."

Colu also announced partnerships with asset brokerage firm eToro and asset trading app Lykke, though there are no specifics on how they'll be deploying the protocol just yet.

Those partnerships align with Colu's aim of fostering a wider community of developers working on Colored Coins with greater peer review, Smargon said. In addition to joining Hyperledger, the firm is currently reviewing other solutions including JPMorgan's Quorum and R3's Corda.

He concluded:

"We’re very interested in how we can move value from private to public ledgers. In our view public and private ledgers are not mutually exclusive."

Disclosure: CoinDesk is a subsidiary of DCG, which has an ownership stake in Colu.

Printing money image via Shutterstock