Bank of England Collaborates with Wallet Manufacturer to Enhance CBDC Transaction Privacy

Updated: 06 July 2023

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What The Bank of England and payments platform Nuggets are to develop a privacy and identity layer for a potential digital Pound
Why The Bank wants users to know their transactions will be secure, private, and shielded against fraud
What next No decision on a digital Pound is expected before 2025

The Bank of England (BoE) is teaming up with payments platform Nuggets to develop a privacy and identity layer for the proposed digital pound.

According to a Wednesday report by The Block, Nuggets will design a private and secure payments feature using ‘Untraceable connections to privately swap and check credentials without revealing identities.’

This will make it difficult to track and correlate transactions on the UK CBDC platform, preventing fraud and money laundering.

Bank Of England’s CBDC Privacy Layer

Nuggets is an e-commerce payments and ID platform that enables trusted transactions through verified self-sovereign decentralized identity. The BoE wants to use Nuggets’ approach to build a trustworthy CBDC platform that ensures privacy, security, compliance and efficiency, while also massively reducing fraud.

According to Nuggets, its identity layer uses Zero-Knowledge proofs to enable people to verify their identities without sharing their data. T

This will give users of the digital pound control over their private data and ensure that their transactions are not tracked on the CBDC platform.

Speaking to the Block, Nuggets co-founder Alastair Johnson said:

“Nuggets initially worked with the Bank of International Settlements on Project Rosalind, in conjunction with the Bank of England and off the back of that work, Nuggets was then asked by the Bank of England to investigate and design the identity and privacy layer as part of its efforts to ensure privacy and security for the proposed digital pound.”

Security and Privacy Concerns Over Digital Pound

The UK central bank began talks on a possible digital pound in February, acknowledging the likely need for a BoE-controlled digital currency, but said a decision on issuing one would not be made until 2025.

The privacy of CBDCs has been a point of discussion for lawmakers and policymakers in the UK.

In February, Abena Oppong-Asare MP voiced her concerns about a digital pound, saying:

“[While] we fully support the Bank of England’s work on this area, …there are important questions…. [like]… how will the Government ensure a digital pound guarantees the privacy of the public?”

The UK financial services minister Andrew Griffith also remarked on the same, saying that Britain should practice caution when deciding whether or not to issue a digital pound, citing the privacy and other issues involved, according to a Reuters report on Tuesday.

While speaking to the Lords’ Economic Affairs Committee, Griffith said:

“My thinking about CBDC is that we should proceed cautiously, which is precisely what we are doing in the joint consultation with the Bank of England. It’s right to engage and have the very widest – and, to a degree, the most thorough – public policy debate, which we have started with the process of consultation.”

A number of central banks around the world are working on CBDC projects with the hope that the underlying technology will foster financial inclusion and facilitate easier cross-border transactions. According to a McKinsey report, 65 countries were in the advanced stages of CBDC development, and over twenty central banks had launched their pilots, including Brazil, Japan, and India as of March this year.