Bank of England sheds light on CBDC: What you need to know
The Bank of England (BoE) recently unveiled a technology working paper detailing their plans for a digital pound. This Central Bank Digital Currency is a major financial breakthrough; over 100 central banks have joined to increase user privacy. As more governments jump on board with this revolutionary new concept, it’s looking very likely that CBDCs will shape the future of financial transactions.
The BoE working paper addresses the common concern that CBDCs are a tool for regulating spending habits and censoring users who don’t abide by specific regulations or politics. Surprisingly, the document indicates that CBDCs have potential limitations but will only be used to grant “users greater functionality,” not restricting their usage.
The Bank will not pursue central bank-initiated programmable functions. This means that the Bank will not program CBDC to restrict its use. But Payment Institution Providers (PIPs) ccould, with user consent, implement programmability features which are designed to give users greater functionality from their wallets and CBDC holdings. These could include automated payments or programmable wallets.”
The Bank of England
In addition to the European MiCA regulations that don’t appear to recognize privacy, personal data protection is another aspect of the proposed CBDC. The BoE’s working paper outlines what it identifies as “blind proofs” (zero-knowledge proofs), allowing individuals to conceal their identity from anyone they transact with and even banks themselves.
The idea of using Zero-Knowledge Proofs (ZKPs) by PIPs to verify Know Your Customer (KYC) checks has been done without exposing customers’ personal data to banks, and other participants in the ecosystem— and it seems very promising. However, it is necessary to ask whether or not this CBDC structure could be altered at any point in the future to breach an individual’s privacy—or if programming can be added to grant authorities more control over citizens. Nonetheless, it is pertinent that measures beyond accepting verbal assurances when assessing such matters should be employed.
