CBDC private payment system can be a reality soon. European Central Bank has recently conducted a research that claimed that central bank digital currency system offering utmost user-privacy could be developed using the right mechanisms. The report titled as ‘Exploring Anonymity in Central Bank Digital Currencies’, this report focused on creating a dedicated ‘Proof-of-Concept’ for a central bank digital currency that will offer its users bullet-proof security and privacy.
The benefits to the public were explained in detail besides its impact on the European financial systems have also been detailed. Accenture and R3 were involved in the development of this dedicated PoC.
CBDC private payment system prototype promises great things
The European System of Central Banks (ESCB) employed Corda platform to create the Proof-of-Concept. The project included the standard parties such as an anti-money laundering authority, a central bank and two other intermediaries. To transfer the assets between two parties, a dedicated network node called CorDapp is created for every party involved in the transaction.
A solution to fight against terrorism funding is well integrated into the PoC itself. It included compliance procedures and regulations that protect user identities. The user information remains hidden from both the intermediaries and the central bank. The notary does not have access to transaction history, addresses of the user, or values involved in the transaction.
The project displayed clearly how a simple CBDC private payment system can be created that delivers anonymity to the users for smaller transactions while still prevent money laundering and terrorism financing for large value transactions.
There’s still room for improvement
Even though the project was a success, there’s still room for improvement. Firstly, the information available to the parties involved needs further reduction. Secondly, the user’s ability to spend or gain access to the CBDC private payment system in the absence of an intermediary must be improved. Enclave computing and rotating public keys must be integrated into the system to boost user privacy further.
Interoperability and scalability were other significant issues that need sorting. The PoC did not address how the system will be integrated with a real-time gross settlement system. This comes after ECB notified that stablecoins were a threat to the global monetary sovereignty.
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