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European System of Central Banks Establishes a Proof of Concept to Maintain Anonymity in Digital Cash

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European System of Central Banks Establishes a Proof of Concept to Maintain Anonymity in Digital Cash

As per a study conducted by the European Central Bank (ECB), a central bank digital currency (CBDC) payment system is now possible that will ensure the privacy of its users. In the report titled “Exploring anonymity in central bank digital currencies,” the European System of Central Banks (ESCB) set up a proof-of-concept (PoC) for maintaining anonymity in the newly purported payment system.

A Breakdown

The PoC is a joint project developed by R3 and Accenture. R3’s blockchain model, Corda was used to develop the PoC, along with 2 intermediaries, an Anti-Money Laundering (AML) authority and a central bank. The featuring parties were presented by a node operating a CorDapp. CorDapp is responsible for enabling the transfer of assets between different entities.

The PoC makes it possible for the development of a highly simplified CBDC payment system which would protect user’s privacy even in lower-value transactions. Higher value transactions are still regularly processed under the AML/CFT checks.

User privacy is the priority as no third party can gain access to user data, for instance, transaction history and user address among others. The central bank nor any of its intermediaries have access to user data unless allowed by the user itself. 

Room for Improvement

The system is still in need of refinement as certain issues need special assistance. For instance, privacy is still a major concern as the amount of information visible to third parties not involved in data transactions needs to be significantly reduced.

As per the ECB, privacy could be greatly improved by incorporating changes such as enclave computing, rotating public keys and zero-knowledge proofs. Concerns of scalability remain unaddressed and operational interaction with a real-time gross settlement system must also be looked upon. 

At a time when countries like China and France are exploring CBDCs, ECB’s focus on data security can really step up the game of CBDCs, which for the most part are being criticized.

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I am a content writer with interests in life sciences and blockchain. I believe that blockchain has the potential to transform every aspect of human endeavor. I love surfing the internet, reading, learning new things, and trying new cuisines.

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