BIS Says CBDCs Can Deliver Cash-Like Privacy, but Security Hurdles Remain

The Bank for International Settlements said central bank digital currencies can provide privacy protection comparable to cash, though security issues still need to be resolved before they can be commercialized.

Cointelegraph reported on October 13 that the BIS, in its “Project Aurum Phase II” report released that day, said CBDCs can deliver a level of privacy protection similar to cash, but the technology is not yet ready for commercial use.

The study was conducted to test how privacy-preserving technology could be applied to CBDCs. Building on its existing Aurum system, the BIS developed a digital cash prototype that protects user anonymity while allowing verification of the information needed to process transactions.

The findings showed that if a specific bank’s system were compromised, the personal data of that bank’s customers could be exposed. Even so, the identities of customers at another bank used by the counterparty would not be revealed. Even if only the transaction-verification system were breached, identifying end users remained difficult.

The BIS said the results show the potential for privacy protection in digital cash, while underscoring unresolved challenges including the risk of data leaks at banks.