Bank of England Tests ZK-Proof Technology for Digital Pound Privacy
The Bank of England is testing privacy technologies like ZK-Proof, or zero-knowledge proofs, for integration into the Digital Pound ecosystem to enhance the security of its central bank digital currency (CBDC).
Privacy Technologies in Digital Currency
In its report titled “Enhancing the Privacy of a Digital Pound,” the Bank discussed potential applications of digital technologies such as ZK-proof, pseudonymization, and secure multiparty computing. These technologies aim to reduce data sharing with the central bank and payment intermediaries, thereby enhancing user control over personal data and improving privacy. The Bank stated:
“This presents opportunities for a digital pound to be at least as private as current forms of digital money and potentially even more private, although as with any technology, there are limitations to what emerging types of PETs can achieve.”
User Privacy Commitment
Following public feedback from consultations in 2023, the Bank of England and HM Treasury reaffirmed their commitment to protecting user privacy, assuring that neither the central bank nor the government would access users' personal data.
ZK-Proof Technology Overview
ZK-Proof is a cryptographic protocol allowing one party to prove knowledge of information without revealing it. This technology is utilized by blockchain platforms like Ethereum, ZCash, and Polygon to improve scalability and privacy.
Barclays' Involvement
Earlier this year, Barclays announced advancements in exploring the potential of a digital pound, discussing its ability to complement traditional bank money and enhance nationwide payment systems.
Collaboration with MIT
The Bank of England is collaborating with the Massachusetts Institute of Technology’s Digital Currency Initiative to explore various Privacy-Enhancing Technologies (PETs) for the Digital Pound. The Bank is evaluating challenges and trade-offs associated with these technologies while ensuring regulatory compliance and privacy. It emphasized the need for further research to address these issues, noting:
“Tensions may also emerge between regulations that require the disclosure of data and the latitude to deploy PETs.”
Ongoing Investigations and Regulatory Developments
The Bank of England began investigating a digital pound in 2020, establishing a task force to assess its design and implications. Public consultations have been ongoing since early 2021, focusing on adapting to technological changes in payments and declining cash usage. Additionally, the UK’s Financial Conduct Authority (FCA) is developing a crypto regulatory framework aimed for completion by 2026, which could facilitate the launch of the Digital Pound CBDC in collaboration with the Bank of England.