The Bank of England has published a new report, “Enhancing the Privacy of a Digital Pound,” which suggests that emerging privacy technologies such as zero-knowledge proofs could enhance user control over data in a digital pound.

Enhancing User Control with Zero-Knowledge Proofs

The report highlights that zero-knowledge proofs and other privacy-enhancing technologies (PTEs) could be viable components of a potential digital pound. These technologies include pseudonymization, ZK-proofs, and secure multiparty computing, which “might feasibly be applied to digital currency systems such as the digital pound to minimize the sharing of data both with the central bank and between payment intermediaries, giving users greater control over their data and enhancing user privacy.”

“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.”

Commitment to Safeguarding User Privacy

Following public feedback from its 2023 consultation, the Bank of England and HM Treasury reaffirmed their commitment to safeguarding user privacy, reassuring that neither the government nor the central bank would have access to users’ personal data.

Understanding Zero-Knowledge Proofs

Zero-knowledge proofs are cryptographic protocols that enable one party to prove they know something without revealing the actual information. This technology is actively being used in blockchains like Ethereum, Zcash, and Polygon for privacy and scaling solutions.

Exploring Emerging PETs

The Bank of England has collaborated with the Massachusetts Institute of Technology’s Digital Currency Initiative to explore the potential of emerging PETs. However, the report acknowledges the limitations and trade-offs, particularly in balancing privacy with regulatory compliance.

“Tensions may also emerge between regulations that require the disclosure of data and the latitude to deploy PETs.”

Next Steps for the Digital Pound

The Bank of England began its exploration of a digital pound in 2020, and public consultations and detailed assessments have been ongoing since early 2021. The central bank emphasizes the importance of adapting to technological advances in payments and the declining use of cash. A final decision on launching its digital currency has yet to be made.

Stay up-to-date with the latest news on cryptocurrencies and digital currencies at Global Crypto News.

Post Views: 1