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Designing a Central Bank Digital Currency with Support for Cash-like Privacy

Title data

Groß, Jonas ; Sedlmeir, Johannes ; Babel, Matthias ; Bechtel, Alexander ; Schellinger, Benjamin:
Designing a Central Bank Digital Currency with Support for Cash-like Privacy.
In: SSRN. (July 2021) .
ISSN 1556-5068
DOI: https://doi.org/10.2139/ssrn.3891121

Abstract in another language

Most central banks in advanced economies consider issuing central bank digital currencies (CBDCs) to address the declining use of cash and to position themselves against increased competition from Big Tech companies, cryptocurrencies, and stablecoins. One crucial design dimension of a CBDC system is the degree of transaction privacy. Existing solutions are either prone to security concerns or do not provide full (cash-like) privacy. Moreover, it is often argued that a fully private payment system and, in particular, anonymous transactions cannot comply with anti-money laundering (AML) and countering the financing of terrorism (CFT) regulation. In this paper, we follow a design science research approach (DSR) to develop and evaluate a holistic software-based CBDC system that supports fully private transactions and addresses regulatory constraints. To this end, we employ zero-knowledge proofs (ZKP) to impose limits on fully private payments. Thereby, we are able to address regulatory constraints without disclosing any transaction details to third parties. We evaluate our artifact in interviews with leading economic, legal, and technical experts and find that a regulatorily compliant CBDC system that supports full (cash-like) privacy is feasible.

Further data

Item Type: Article in a journal
Refereed: No
Keywords: Anonymity; CBDC; Compliance; Design Science; Digital Identity; Digital Wallet; Electronic Cash; Payment System; Privacy by Design; Regulation; Self-Sovereign Identity; Zero-Knowledge Proof
Institutions of the University: Faculties > Faculty of Law, Business and Economics > Department of Business Administration
Faculties > Faculty of Law, Business and Economics > Department of Business Administration > Chair Business Administration XVII - Information Systems and Value-Based Business Process Management
Research Institutions
Research Institutions > Affiliated Institutes
Research Institutions > Affiliated Institutes > Fraunhofer Project Group Business and Information Systems Engineering
Research Institutions > Affiliated Institutes > FIM Research Center Finance & Information Management
Faculties
Faculties > Faculty of Law, Business and Economics
Result of work at the UBT: Yes
DDC Subjects: 000 Computer Science, information, general works > 004 Computer science
300 Social sciences > 330 Economics
Date Deposited: 31 Aug 2021 10:02
Last Modified: 31 Aug 2021 10:02
URI: https://eref.uni-bayreuth.de/id/eprint/66886