London-based Nuggets – an award-winning identity and payment platform – has revealed it is working with the Bank of England on a technology experiment to design a privacy layer for the UK’s Central Bank Digital Currency (CBDC).
If a CBDC – also known as the digital pound – were introduced, the identity layer would be required to help empower users to maintain privacy and control their data.
Nuggets’ intention is to design a system that is private and secure and prevents tracking and correlation of transactions while maintaining standards of fraud and anti-money laundering prevention.
Countries throughout the world are moving ahead with their CBDC ambitions, with the UK Treasury and Bank of England stating a UK CBDC could be launched before the end of the decade.
However, while promising to increase financial inclusion and facilitate easier and cheaper cross-border payments, CBDCs have faced a raft of complaints surrounding inherent privacy and security challenges.
CBDCs have also faced criticism surrounding the risks they pose concerning individuals’ privacy and the possibility of monitoring. Bank of England officials have echoed these concerns, noting that “privacy and potential to monitor citizens top the list of worries” surrounding CBDCs.
By implementing zero-knowledge proofs (ZKPs), a cryptographic breakthrough that allows the ability to validate information without exposing the underlying data, anyone can confirm their identity while staying in complete control over who accesses their data, thus safeguarding their privacy and mitigating CBDC surveillance concerns.
One of the main benefits of the identity layer lies in establishing a secure non-correlatable connection through Peer DIDs, a unique and confidential one-off identifier associated with an individual. This enables the exchange of verified credentials that let users confirm their identity and comply with anti-money laundering (AML) and know-your-customer (KYC) regulations. Once the account is set up, users can make CBDC payments and verify themselves privately without needing to go through KYC or AML processes or provide additional proof of their identity.
“We are honoured to be selected by the Bank of England to provide the solutions for safeguarding individual privacy,” said Alastair Johnson, founder and CEO of Nuggets.
“Nuggets is working to better ascertain and test various use cases and solutions aimed at making CBDC operations more private and secure for everyday users.
“It’s an excellent opportunity with the dawn of a new monetary system to be able to get it right from the beginning through the use of identity that’s owned and controlled by the user with privacy, security and no tracking or correlation. A digital pound, a private pound.”