The Bank of England has unveiled new research suggesting that emerging privacy technologies, such as zero-knowledge proofs (ZK-proofs), could play a crucial role in enhancing user privacy and control over data in the potential digital pound.
In its latest report, “Enhancing the Privacy of a Digital Pound,” the central bank discussed how privacy-enhancing technologies (PTEs) like pseudonymization, ZK-proofs, and secure multiparty computing might be integrated into digital currency systems. The goal is to minimize data sharing between the central bank, payment intermediaries, and users, offering individuals greater control over their personal data.
The Bank of England reaffirmed its commitment to safeguarding user privacy following its 2023 consultation. Both the central bank and HM Treasury assured the public that neither would have access to users’ personal data in the event of a digital pound launch.
ZK-proof, a cryptographic protocol that allows one party to prove knowledge of a fact without revealing the fact itself, is already being used by blockchain networks such as Ethereum, Zcash, and Polygon for both privacy and scalability purposes.
In collaboration with the Massachusetts Institute of Technology’s Digital Currency Initiative, the Bank of England has been studying the potential of these privacy technologies. However, the bank acknowledged challenges in balancing privacy with regulatory compliance, noting that tensions may arise between data privacy requirements and regulations demanding data disclosure.
The Bank of England first launched its exploration of a digital pound in 2020, establishing a task force to evaluate the feasibility and design of a central bank digital currency (CBDC). Public consultations and assessments have continued since 2021, but the bank has not yet made a final decision on whether to proceed with the digital currency initiative.
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