New research from the Bank of England suggests emerging privacy technologies such as zero-knowledge proofs could increase user control over data in a digital pound.
The Bank of England has suggested that zero-knowledge proofs and other privacy-enhancing technologies – known as PTEs – could be viable components of a potential digital pound.
In its latest report titled ‘Enhancing the Privacy of a Digital Pound’, the central bank said technologies such as pseudonymisation, ZK-proofs and secure multi-party computing ‘could potentially be applied to digital currency systems such as the digital pound to minimize risks. sharing data both with the central bank and between payment intermediaries, giving users more control over their data and improving user privacy.”
“This presents an opportunity for a digital pound to be at least as private as current forms of digital money and possibly even more private, although, as with any technology, there are limitations to what emerging types of PETs can achieve.”
The Bank of England
Following public feedback from the 2023 consultation, the Bank of England and HM Treasury confirmed their commitment to protecting user privacy, reassuring that neither the government nor the central bank would have access to users’ personal data.
ZK-proof is a cryptographic protocol that allows one party to prove that it knows something without revealing the actual information. The technology is actively used in blockchains such as Ethereum (ETH), Zcash (ZEC) and Polygon (POL) for privacy and scaling solutions.
You might also like: Bank of England rolls out consultation document for wholesale CBDC
Working with the Massachusetts Institute of Technology’s Digital Currency Initiative, the UK central bank has explored the potential of emerging PETs while still recognizing their limitations and tradeoffs, particularly in balancing privacy and regulatory compliance.
“Tensions may also arise between regulations requiring data disclosure and the leeway to deploy PETs,” the report said, underscoring the need for further research to address these challenges.
The Bank of England began its exploration of a digital pound in 2020, when it set up a taskforce to evaluate the potential design and implications of a central bank digital currency. However, public consultations and detailed assessments have been ongoing since early 2021, with the central bank emphasizing the importance of adapting to technological advances in payments and the declining use of cash. The bank has yet to make a final decision on the launch of its digital currency.
Read more: Experts back the BoE’s privacy-focused approach in its digital pound proposal
