The Bank of England is testing privacy-enhancing technologies like ZK-Proof (zero-knowledge proofs) to improve the privacy and security of its Digital Pound CBDC.
The Bank of England is now testing emerging privacy technologies like ZK-Proof aka zero-knowledge proofs, and integrating it into the Digital Pound ecosystem, to boost the security of its central bank digital currency (CBDC).
In its recent report dubbed “Enhancing the Privacy of a Digital Pound”, the British central bank discussed the potential application of digital technologies like ZK-proof, pseudonymization, and secure multiparty computing in digital currency systems, such as the Digital Pound.
These technologies could reduce data sharing with the central bank and payment intermediaries, thereby giving users more control over their data and improving privacy. In the report, the Bank of England noted:
“This presents opportunities for a digital pound to be at least as private as current forms of digital money and potentially even more private, although as with any technology, there are limitations to what emerging types of PETs can achieve.”
Following public feedback after its last year’s consultation in 2023, the British Central Bank along with HM Treasury stressed its commitment to safeguarding user privacy. It also reassured that neither the central bank nor the government would have any kind of access to users’ personal data.
ZK-Proof is a popular cryptographic security protocol that allows one party to demonstrate knowledge of a piece of information without disclosing the information itself. Popular blockchain platforms like Ethereum, ZCash, and Polygon use this technology to enhance scalability and privacy.
Earlier this year, British banking giant Barclays announced that it is advancing its efforts to explore the potential of a digital pound in the UK. The bank also discussed how a digital pound could complement traditional bank money and enhance payment systems nationwide.
Bank of England Collaborates With MIT’s Digital Currency Initiative
In collaboration with the Massachusetts Institute of Technology’s Digital Currency Initiative, the Bank of England is exploring several Privacy-Enhancing Technologies (PETs) for CBDC Digital Pound. However, the British central bank is weighing all the challenges and trade-offs that these technologies bring, while balancing regulatory compliance and privacy.
As a result, the Bank of England underscored the need for further research in order to address these challenges noting:
“Tensions may also emerge between regulations that require the disclosure of data and the latitude to deploy PETs.”
The Bank of England began investigating a digital pound in 2020, forming a task force to assess its design and implications. Since early 2021, public consultations and assessments have continued, with the central bank emphasizing the need to adapt to technological changes in payments and the decline of cash usage.
On the other hand, the UK’s top financial regulator Financial Conduct Authority (FCA) is also working on building a crypto regulatory regimen by 2026. Thus, the central bank could work with the FCA going ahead to launch the Digital Pound CBDC ahead.
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