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July 27, 2021   Blockchain, Crypto, Digital Assets Regulations, Blockchain, Crypto, Digital Assets, Tokens, CBDCs, Metaverse, NFTs, Fintech AI/ML, Data-driven, FinTech and Alternative Finance, Fintech International, Innovation and Resources, Research   No comments

Designing a Central Bank Digital Currency with Support for Cash-Like Privacy

SSRN | Jonas Gross et al | Jul 22, 2021

retail CBDC with cash like privacy - Designing a Central Bank Digital Currency with Support for Cash-Like Privacy

Most central banks in advanced economies consider issuing central bank digital currencies (CBDCs) to address the declining use of cash and to position themselves against increased competition from Big Tech companies, cryptocurrencies, and stablecoins.

One crucial design dimension of a CBDC system is the degree of transaction privacy. Existing solutions are either prone to security concerns or do not provide full (cash-like) privacy.

Moreover, it is often argued that a fully private payment system and, in particular, anonymous transactions cannot comply with anti-money laundering (AML) and countering the financing of terrorism (CFT) regulation.

See:  BIS Research: CBDCs beyond borders: results from a survey of central banks

In this paper, we follow a design science research approach (DSR) to develop and evaluate a holistic software-based CBDC system that supports fully private transactions and addresses regulatory constraints.

To this end, we employ zero-knowledge proofs (ZKP) to impose limits on fully private payments. Thereby, we are able to address regulatory constraints without disclosing any transaction details to third parties.

We evaluate our artifact in interviews with leading economic, legal, and technical experts and find that a regulatorily compliant CBDC system that supports full (cash-like) privacy is feasible.

Continue to the full article and download the 44 page PDF --> here

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