Bank of International Settlements

BIS launches new CBDC project with focus on privacy

Countries and organizations around the world are exploring the capabilities of CBDCs.

For some time, the Bank of International Settlements (BIS) has been in its midst. BIS has launched its latest project, exploring cyber resilience, scalability, and privacy in a prototype CBDC. 

The project is titled, Tourbillon and could shape the development of CBDCs to come. 

Privacy is of great concern in the development of CBDCs

In a recent survey, BIS found that central banks, representing a fifth of the global population, will likely launch a CBDC in the next three years. While many focus on wholesale applications, the benefits of a retail CBDC are quickly becoming apparent. 

RELATED: CBDCs: The key to global financial inclusion?

However, a key concern for consumers when approaching retail CBDCs is privacy. In response to an ECB consultation for a Euro-denominated CBDC, which surveyed 8,200 people, 41% of responses were centered on privacy. 

While privacy, scalability, and security affect both use cases, rumors of governments planning to use retail CBDCs for surveillance projects follow their development like a stink. 

The recent announcement of the Fed’s digital dollar pilot has been met with criticism and concern about “social credit scoring,” the start of “1984,” and general government control of the public. 

In the G7 Public Policy Principles for Retail CBDCs, particular attention was brought to users’ privacy. The document stated:

“CBDC must protect the privacy of users, including by requiring that the processing of their data is subject to laws governing privacy and the collection, storage, safeguarding, disposal and use of personal data that are enforceable in the jurisdiction.”

It continued to outline instances where user data could be held, accessed, or processed and the importance of transparency and user consent. 

In developing CBDCs, this, along with scalability and security in the face of emerging technologies, is considered an utmost priority. 

Despite this, previous designs have encountered a need for a compromise between the three in creating a final prototype. 

Tourbillon aims to resolve this issue. 

“Delivering a CBDC involves difficult trade-offs between cyber resilience, scalability, and user privacy. Project Tourbillon will build and test a prototype that reconciles these trade-offs and pushes central banks’ technological frontier,” said Morten Bech, Head of the BIS Innovation Hub Swiss Centre.

Based on eCash 2.0

The project, based on the design theorized by David Chaum, creator of the XX Network, and Thomas Moser, The Swiss National Bank, in their eCash2.0 paper, pays particular attention to privacy and anonymity but also aims to solve issues with scalability and the emerging threat of quantum computing on cyber resilience. 

The Tourbillon project page explains that the prototype aims to solve issues of trade-offs between the three. It states, “higher resiliency against cyber-attacks, especially from quantum computers, requires additional cryptography, which can slow down payment processing. Privacy must be weighed against the need to counter money laundering, terrorism financing, and other illicit payments.”.   

blind signatures
Blind Signatures, outlined above, are likely to be included in the prototype design.

The prototype will be developed using proven technology combined with the latest cryptography research. The eCash design outlined by Chaum and Moser includes a combination of methods already used within DeFi, including private keys and zero-knowledge proofs. Decentralization of control is also addressed. 

“I am thrilled to see these important technological advances being tested out so that there is no doubt that privacy, including the more advanced type introduced here, can co-exist with the strongest type of quantum resistance and efficient performance.” 

“This provides a better level of privacy than cash, with additional guarantees that the privacy cannot be taken from the end user.”

The prototype is currently projected to be finished by mid-2023. 

  • Isabelle Castro Margaroli

    Isabelle is a journalist for Fintech Nexus News and leads the Fintech Coffee Break podcast.

    Isabelle's interest in fintech comes from a yearning to understand society's rapid digitalization and its potential, a topic she has often addressed during her academic pursuits and journalistic career.