Exploring Privacy and Fraud Prevention in Central Bank Digital Currencies (CBDCs)

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Central Bank Digital Currencies (CBDCs) have been gaining traction as a promising solution for financial institutions worldwide. The technology has surfaced following the rise of cryptocurrencies, such as Bitcoin, compelling central banks to explore the development of their digital counterparts. In light of this, Quant, a UK-based company, has been involved in nurturing the development of CBDCs primarily in the United Kingdom and the United States.

Gilbert Verdian, CEO and Founder of Quant, reassures that privacy should not be of concern when it comes to CBDC technology, although he admits the UK CBDC, known as the Digital Pound, will be “private but not anonymous.” Verdian argues that CBDC implementation upholds both Anti-Money Laundering (AML) and Know Your Customer (KYC) measures. Furthermore, transactional data on public blockchain networks will not include personal identifiable information.

Collaborating with the Bank of England, Tom Mutton, the director responsible for CBDCs, states that a certain level of identity information is necessary for fraud and financial crime prevention. Though the identity information will not be handed over to the Bank of England, CBDCs present a unique opportunity to address the legacy issue of fraud. With privacy-enabled CBDCs, relevant bodies can adopt a more holistic view of the system, enabling them to prevent and punish fraud more effectively.

While no official decision has been made regarding the development of a digital pound, Mutton implies that it might be released to the public around the end of the decade. As part of the transition, he envisions that digital wallets and smart cards provided by the private sector will allow users to access services, while cash remains available for as long as people wish to use it.

In the proposed plan, the digital pound will not be programmable, meaning that there will be no restrictions on spending or locations where it can be spent. Instead, programmability is an aspect that the private sector will have the liberty to explore upon user consent.

Mutton confirms that the Bank of England has been experimenting with the Digital Pound project, involving Quant as an important participant. The next phase, dubbed the “design phase,” will place emphasis on experimentation at the core of the project. This further solidifies the central bank’s commitment to exploring CBDC technology, despite concerns around privacy.

In conclusion, while the development and implementation of CBDCs may introduce potential privacy-related concerns, proponents of the technology believe that it offers a chance to tackle fraud in new and innovative ways. As we move closer to the ideal implementation of a digital pound, understanding the balance between privacy and technological innovation will be essential for gaining public support and building a more transparent financial system.

Source: Decrypt

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