Amid the rising interest in central bank digital currencies (CBDCs), the Bank for International Settlements (BIS) has published a report probing the possibilities of a privacy-focused retail CBDC.
Called Project Tourbillon, after the mechanical parts of a watch, the BIS project attempts to proffer solutions to the pressing issue of privacy, scalability, and security for CBDCs. According to the 46-page report, the project revolves around the two eCash designs put forward by David Chaum, an early proponent of cryptography, in 1982.
eCash 1.0 placed prominence on “unconditional payer anonymity” while eCash 2.0 revolved around the security and resiliency of a digital payment system, with Project Tourbillon recording positive results from preliminary studies. The project noted that integrating quantum-safe blind signatures in CBDC networks can be used to ensure the anonymity of transacting parties.
For example, studies revealed that merchants, commercial banks, and central banks cannot access users’ personal payment data. Instead, the system allows the central bank to “monitor CBDC circulation at an aggregate level,” giving it a measure of control over the CBDC system.
Privacy concerns have since plagued attempts of global central banks to explore digital versions of their national currencies, featuring heavily in public consultations. Critics of CBDCs have described the offering as a state surveillance tool, but Project Tourbillon is attempting to solve the privacy riddle.
Project Tourbillon also recorded significant strides in security and scalability, noting the trade-offs between the two prototypes recorded by Chaum. The project, however, ran into several challenges stemming from using the novel quantum-safe cryptography technique, with the researchers promising more experiments.
“However, the implementation proved challenging,” read the report. “Quantum[1]safe cryptography exhibited slow performance and limited functionality, with throughput reduced by a factor of 200 compared to so-called classic cryptography, highlighting the need for further research and development.”
Researchers say that quantum-safe cryptography will be improved for easy deployment while focusing on “exploring sustainable business models.”
BIS leads central banks
Since 2020, the BIS has been probing into CBDCs, particularly cross-border functionalities, to improve payments to prevent the “cryptoization” of local economies.
The BIS urged central banks to “move as fast as possible” to roll out their CBDCs to match the threats of a stablecoin release by large payments service providers like Visa and Mastercard.
“I think the fact that PayPal (NASDAQ: PYPL), Visa (NASDAQ: V), Mastercard (NASDAQ: MA), these big names, and a parallel system of stablecoins could be generated that compete with sovereign currencies, is a concern,” said BIS General Manager Agustin Carstens. “And therefore, I think that it behooves authorities to move as fast as possible, given the constraints they face.”
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
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