This week, the identity and payment firm, Nuggets, announced it had partnered with the Bank of England (BoE) to develop a privacy and identity layer for the country’s future central bank digital currency (CBDC). The zero-knowledge proof (ZKP) solution will ensure the digital pound maintains a high level of privacy and security without increasing the risks of financial crime.
Nuggets ZKP solution
Although CBDCs have been hailed as the key to enhancing financial inclusion and payment efficiency, many people worry about their inherent privacy and security challenges, arguing that the government could easily turn them into a surveillance and monitoring tool.
Several jurisdictions have been exploring privacy-enhancing technologies (PETs) to mitigate surveillance concerns, but the issue remains a challenging task. Central banks must strike the right balance to maintain the necessary fraud and anti-money laundering (AML) prevention measures.
However, Nuggets believes ZKPs may offer a potential workaround. The technology allows third parties to test encrypted data for limited facts without exposing the underlying data. This means users would be able to verify their identity while keeping control over their personal data. Themain advantage is they enable private information to be stored securely on a mobile phone, with the identity credential verified using blockchain or distributed ledger technology (DLT). Hence Nuggets’ offering is a self sovereign identity solution (SSI).
The company has previously worked with Lexis Nexis Risk Solutions on login, payment and identity verification to address bank fraud, so it is well-placed to work with the BoE on a privacy-preserving identity layer for the country’s retail CBDC.
“Nuggets is working to better ascertain and test various use cases and solutions aimed at making CBDC operations more private and secure for everyday users,” said Alastair Johnson, founder and CEO of Nuggets. “It’s an excellent opportunity with the dawn of a new monetary system to be able to get it right from the beginning through the use of identity that’s owned and controlled by the user with privacy, security and no tracking or correlation. A digital pound, a private pound.”