On Twitter recently, Ethereum co-founder Vitalik Buterin alluded to the potential abilities of Plasma as a way to scale the Ethereum platform so that it could be used by banks internationally. As EthNews notes, Plasma could enable state issued cryptocurrencies as a second layer solution to scalability problems, but these are not the only barrier towards implementing digital currencies to be used by national banks.
Ethereum's ERC20 coin protocol has been looked at as a candidate for central bank-issued digital currencies (CBDCs), which would bring blockchain and crypto technologies into the domain of government finance institutions, and offer a way for countries to issue and trade their own cryptocurrencies.
Perhaps the biggest problems with potential CBDCs is simply size. Traders complain of slow payment times as is, and bringing cryptocurrencies into the domain of state banks would astronomically increase the size and rate of transactions needed to process.
Surprised by this tweet I admit.— Ladislav Stejskal (@ladislavtweet) July 11, 2018
With all the scalability issues, lack of dApps with massive user base used daily, you are suggesting Ethereum is ready today to handle a country's currency?
What do you base your optimism on?
Plasma implementations being almost ready :)— Vitalik "Not giving away ETH" Buterin (@VitalikButerin) July 11, 2018
The base layer for a central bank currency having $5 txfees is ok; it is after all only a settlement layer
As explained in a Medium post by the Argon Group, Plasma is a design paradigm which has been proposed that might be able to scale Ethereum's technology to a place where it could potentially be used in a CBDC context. Plasma processes transactions at a layer above the blockchain faster than the blockchain itself and can branch off hierarchical instances of itself, or 'child chains' which are then verified for security and authenticity before the transaction results are returned to the blockchain completed and computed.
The hierarchical nature of Plasma and its structure of child-nodes is critical towards scaling Ethereum and related platform, as complex operations on multiple channels can be done simultaneously, moving much faster than is possible with the main blockchain alone.
While Plasma is showing promise in the scaling fronteir, its important to remember that this is not the only thing keeping back national banks from issuing cryptocoins.
As detailed by Block-chain, some governments are kicking the idea of CBDCs around while others are simply refusing to consider them.
Many governments and regulatory bodies remain skeptical to cryptocurrencies. China has expressed interest in CBDCs, but Russia has maintained that a cryptocurrency held within a national border doesn't even make sense. Some countries want to issue cryptocurrencies to be used within a state, and some have expressed interest in CBDCs as a means for international trading exclusively.
While there is still a lot of work to be done until CBDCs are even potentially viable, Buterin remains hopeful and has expressed support for the concept.