BOE Explores CBDC Privacy Solutions

The Bank of England (BOE) and the Massachusetts Institute of Technology Digital Currency Initiative (MIT DCI) have published a paper exploring privacy enhancing technologies (PETs) for a possible digital pound.

The starting point is the goal of preventing the government from having all the private identity data, both in legislation and by using technical means. However, if payments are not anonymous, then there is data to hack. The data might sit with payment providers rather than the central bank, but it’s still there and could be misused.

Privacy enhancing technologies (PETs) Meanwhile, the paper explores three PETs: 

• Pseudonymity
• Zero knowledge proofs (ZKP)
• Multi-party computation (MPC).

Pseudonymity avoids using a person’s name, phone number or social security number in an attempt to hide a person’s identity. However, wallet addresses often persist across multiple transactions, allowing different wallet addresses to be linked. As a result, pseudonymity won’t guarantee privacy.