A new trial called Project Tourbillon, led by the Swiss National Bank (SNB) and the BIS Innovation Hub, is testing privacy techniques for retail central bank digital currencies (CBDCs). The goal is to enable anonymous payments while still being compliant with anti-money laundering regulations.
Privacy is a major concern with retail CBDCs. People worry that governments could see exactly how they spend money or even prevent access to digital cash altogether. Solutions like Tourbillon aim to protect transaction details much like physical cash does. However, all digital money relies on central bank systems, so access could theoretically be limited no matter the privacy tech.
Tourbillon utilizes “eCash” protocols invented in the 1990s by cryptography pioneer David Chaum. His company DigiCash introduced early digital currency concepts but went bankrupt in the dot-com crash. Now there is renewed interest in Chaum’s privacy techniques for modern CBDCs projects.
The trial implemented two versions of eCash. eCash 1 checks each payment against a registry of spent coins to prevent double spending. But this can have security and performance issues as the registry grows huge. eCash 2 instead tracks unspent coins, solving those problems but reducing anonymity since the central bank now knows users’ coin serial numbers. An additional “mix network” shuffle of serials is required to restore anonymity.
Quantum computing was also tested but found to significantly slow performance, needing more research. And alternative anonymity methods like zero-knowledge proofs are being explored by groups like the Bank of Israel.
For my blog’s readers, the SNB is focused on wholesale CBDCs for now, with the SIX Digital Exchange using one for settlements. But the innovation around retail CBDC privacy showcases the currency technology still being researched by leading central banks. Experiments like Project Tourbillon will inform any future retail CBDCs while advancing the field as a whole.
