The European Commission, in a recent proposal, tackled regulations aimed at governing the future of central bank digital currency (CBDC). Interestingly, while the proposal affirmed the need to “protect privacy”, it also made provisions for keeping detailed records of transactions, thus suggesting a contradictory trajectory for the evolution of digital currency regulation.
Turn back to the EC’s proposal, it described a Near Field Communication (NFC)-based system for offline payments. The system would allegedly prevent parties from watching what other parties are purchasing. The surface layer touch of comprehending citizens’ civil liberties cannot be interpreted as the absolute truth, though. A deeper exploration unveils that the proposal demands payment service providers to maintain extensive records. This is controversial and rings alarm bells, primarily because of the recent crackdowns on cryptographic privacy by European authorities.
Regardless of the rhetoric around preserving privacy, the hard reality is that liberal democracies have yet to show a willingness to entirely embrace privacy in the domain of digital money. The ideal for these democracies is a façade of privacy that pacifies citizens into believing that they will never be under surveillance while giving authorities the power to reveal users’ identities when required.
The proponents of privacy-preserving CBDCs in Europe want to mirror the anonymity of cash transactions. However, they have a long way to go. Lukasz Olejnik, a security analyst, recently critiqued the European proposal, highlighting that unlike cash transactions, service providers, under the new regulations, must report identifying information such as the device’s unique identifier and the account numbers used.
Adding to these concerns is the recent crackdown on open-source privacy projects. Countries like The Netherlands have been instrumental in pursuing cases against privacy initiatives like Tornado Cash, sending shockwaves throughout the cryptography community. Not to mention that the legal pressure on privacy coins such as Zen reached such a peak that developers stripped the coin of its privacy safeguards.
This remains a hot-topic in the ever-growing debate on privacy and encryption on the blockchain. Yet, we should also be open to potential advantages of CBCDs. As they could equip us with smart contract capabilities and peer-to-peer monetary settlement, leading towards unheard-of efficiencies that existing bank-intermediated IOU money simply cannot offer.
The real question is comprised of the fact that despite showing promise, these models are at odds with a complex web of compliance rules established for resisting illicit finance. Therefore, the notion of having privacy while maintaining detailed records appears contradictory. So, how do we draw a line where a solution is reached that doesn’t compromise either party?
While skeptics stay unconvinced, advocates remain hopeful. The search for a middle ground is underway, the attempts that focus on an efficient integration of cryptographic and legal barriers. This middle ground shall neither promise unbridled privacy nor warrant unrestricted access to user data but a balance that acknowledges both the priorities. Hopefully, with such a model, the future of digital currencies will be more secure, private, and effective.
Source: Coindesk
