Last week, the digital currency global initiative (DGCI) was launched. DCGI’s first virtual conference took place on Wednesday and Thursday. The DCGI is a collaboration between ITU -SB (International Telecommunication Union – Standards Body) and Stanford University’s Future of Digital Currency Program. The formation of DCGI is a result of multiple ITU focus groups coming together after two or three years of work. The ITU Focus Group on Digital Financial Services, the Financial Inclusion Global Initiative, and an ITU Focus Group on Digital Currency including Digital Fiat Currency. Focus groups are special constructs setup inside the ITU-T to tackle rapidly moving technical initiatives.
Three working groups are set up under the DCGI to drive standardization of Digital Currencies. They address infrastructure, security and trust.
- Architecture, Interoperability Requirements and Use Cases (AIRU)
- Policy and Governance (PG)
- Security and Assurance (SA)
Digital Currencies include Digital Fiat, Stablecoins and Virtual Currencies.
International Telecommunications Union
ITU is descended from the oldest global international organisation in the world, even before the UN or League of Nations were created. The International Telegraph Union was created in 1865. At that time, the ITU codified morse code and standardized telegraph equipment and tariffs.
Now, the ITU is a specialized agency of the UN. The specific sector involved in this discussion is ITU-T led by Dr. Chaesub Lee. The ITU-T is responsible for standards setting in telecommunications and Information Communications Technology (ICT). It is the only body capable of bringing together 190 governments and 900 or so academic institutions and private enterprises to develop standards in ICT.
All ITU standards, more than 3000 of them, are freely available to anyone. This is in contrast to the ISO/IEC and IETF. ITU standards include video encoding standards like MPEG-4, JPEG, VOIP, X.500 and IMT-2020 (5G). ITU works with ISO and IETF.
When attending ITU meetings, the bewildering array of acronyms confound even the most stout hearts. After an immersion in the world of international bureaucracy for a few days, the world of acronyms and special terms start to make sense. Following strict formal protocols for elections, speaking and interacting also makes for less friction in international collaboration.
The Standards Process
Usually the standards process is a grind, most of the old hands refer to this as a sausage making process. There is always a race between implementations created by private enterprises and the development of a standard, the dominant solution often has a very great influence on standards.
ITU standards used to take years to develop, their main work products are normative Recommendations. Recommendations usually get codified into national laws. Since the aim of ITU-T is to produce efficient standards in a timely manner, multiple years that took to hammer out an international consensus did not often satisfy the timeliness goal. Study groups and focus groups were their solution to keep up with the rapid pace of technical change.
One could say that the cryptocurrency ship has already sailed with Bitcoin and Ethereum and the ICU craze. However, stablecoins are in a period of maturation and Central Bank Digital Currencies (CBDCs) are just beginning to take off. In one of the studies from the BIS, after the pandemic, there is a steep rise in the number of the central banks looking into CBDC.
The best time to start working on digital currency standards is now, speed is paramount.
What Standards Do
Standards spur adoption. In the case of the ITU standards, they also create national laws and regulations to back up the standard. Standards help avoid vendor locki-n and creates a clean separation of the various layers of the technical stack. Making for independent development of the the different layers at different rates. Standards foster interoperability.
In the realm of CBDCs, interoperability between the various national or regional currencies and integration into other forms of private and decentralized money will have enormous consequences for financial inclusion and cross-border payments. The transfer of money across national borders and currency regimes often takes days and costs much. The promise of interoperability is near instant transfer, with positive impact on GDP of both developed and developing nations.
Technology Behind Digital Currencies
Standards are meant to be technologically neutral, however with the pedigree of digital currencies firmly rooted in DLTs and blockchains, there are many participants in DCGI who are blockchain and DLT enthusiasts. It is fit that such technologies are at the forefront of what is considered as a framework for digital currencies. Questions of scalability and privacy have to be answered. There are some in the working groups who advocate for non DLT solutions.
ITU has a long history of setting engineering standards. This is appropriate for a standards body focused on Information Communications Technology. Some of the standards proposed by the agency like MPEG and JPEG, are ubiquitous and successful. However, digital currencies are a mix of engineering and social dynamics with more than a dash of what is called crypto-economics. This is the reason that the governance and policy working group is going to be crucial in guiding the standards of DCGI.
DCGI should be wary of over-engineering standards and being timely, as they are two challenges that the deliberate pace set by process oriented engineers and project leads face. This is especially true of the fast moving digital currency space as Libra and DCEP (the Chinese CBDC) are well on their way to implementation.
Security is another bugbear of digital currencies, most of the attacks against crypto-currencies have been through breaches of wallets. Consensus attacks are also not uncommon for PoW networks with little hash-power or some other weakness. The security working group will set the pace for this effort. They will develop threat models, advocate for counter-measures and create assurance level guidelines for acceptable residual risk.
Digital Currency Labs
The operational aspects of digital currency adoption as well as engagement with the community and advocacy are activities that support the standardization process. Further, evaluation methods and metrics will be developed to assess and benchmark digital currency solutions presented by participating enterprises or governments. Starting with standardizing metrics on operations and security, the working groups will implement and test the solutions in the Digital Currency Lab. Results from these experiments will be used in publishing standards and guidelines.