Privacy protection is pivotal in the development of Central Bank Digital Currency (CBDC). Computing scientists at The Hong Kong Polytechnic University (PolyU) are conducting research to investigate the applications of privacy-enhancing technologies (PETs) to ensure the confidentially and integrity of CBDC transactions.
Prof. Allen Man Ho AU, Professor of the Department of Computing of PolyU, is undertaking research for a white paper by the CBDC Expert Group on privacy protection in CBDC development to enhance confidence among the public and industry. “It is crucial to have CBDC with PET included by design, and we should be transparent for the system design for public inspection,” said Prof. AU.
The research primarily investigates technologies such as pseudonyms, zero-knowledge proofs, ring signatures, and secure multiparty computation. Each of these technologies offers distinct advantages in safeguarding transactional privacy. For instance, zero-knowledge proofs enable transaction verification without disclosing any transactional or personal details, thereby maintaining transactional unlinkability and user anonymity.
Zero-knowledge proofs, also known zero-knowledge cryptography, allows a “prover” to convince a person of the validity of a computation without leaking any information; it is hence referred to as zero-knowledge cryptography. It is seen as a breakthrough technology impacting Web3, a decentralised online ecosystem based on blockchain, because it enables data privacy protection, efficiency improvement and scalability of transparent systems such as blockchain.
Prof. AU, said, “To enhance public and industry confidence in the privacy of CBDCs, we advocate for a comprehensive strategy. First, it is crucial to integrate advanced PETs such as zero-knowledge proofs and secure multiparty computation. These technologies enable transactions while safeguarding user identities and details.”
The research also delves into the challenges of integrating these technologies into CBDC systems, considering different architectural designs—whether public or permissioned blockchains—and whether they employ a UTXO (unspent transaction outputs) or an account-based data model. The analysis addresses critical factors such as scalability, risk, auditability, and, importantly, regulatory compliance.
By publishing white papers and actively engaging in public dialogue, the promotion of transparency can help to demystify CBDC technologies and effectively address any concerns within the community. Prof. AU added, “Regular audits and compliance checks conducted by third parties will further validate the integrity of privacy protections.”
CBDC is expected to undergo significant advancement in the next five years. More countries will launch pilot programmes to text various use cases, encompassing both retail to wholesale applications. This will include a combination of advanced economies and emerging markets, each delving into CBDCs customised to suit their specific economic and social needs.
In order to sustain its leading position in the CBDC field, Prof. AU said “Hong Kong should continue investing in research and development while promoting innovation through collaborations among the government, industry and academia. The focus is on pioneering new CBDC technologies and use cases that can serve as benchmarks globally.”
Recently, HKMA has commenced Project Ensemble, a new wholesale CBDC project to support the development of the tokenization market in Hong Kong. Since the establishment of the CBDC Expert Group, PolyU researchers and Prof. AU along with other members have been closely collaborating with HKMA to examine various aspects of CBDCs and related digital currencies.
