The Bank of England has hired digital payment platform Nuggets to develop digital currency privacy and identity features as policymakers step up preparations for a currency dubbed “Britcoin”.
Nuggets chief executive Alastair Johnson said his technology would allow people to verify a person’s citizenship and buy age-restricted goods such as alcohol and cigarettes. His remarks provide insight into how the Bank of England can encourage consumers to use central bank digital currency, or CBDC.
He said the Nuggets technology could also reduce the number of companies collecting and using purchase data, as well as help enable so-called micropayments, where people use the digital pound to pay for small items like a single newspaper article rather than a full subscription.
The Bank of England and the Treasury are currently weighing whether to move forward with the launch of Britcoin after the completion of public consultations in June. Officials believe that a digital pound is likely to be needed, but will not decide whether to move from design to creation until two to three years from now. The earliest that a CBDC could eventually appear is in the second half of this decade.
The Bank of England is one of a number of central banks considering digital currencies that will support the circulation of government-backed money as contactless cards and online payments become more popular.
The work on the CBDC drew criticism, including former Bank of England governor Mervyn King, who called it a “no problem solution”. However, Johnson’s comments hint at possible features that would make the digital currency more attractive than more cumbersome alternatives such as cash and the use of ID cards to verify age and citizenship.
“You can verify age without showing age,” he said. “There are other assets that you can demonstrate – whether you are a British citizen on your passport and so on. There are many scenarios that you can demonstrate for this.”
Experts warn that CBDCs pose a privacy risk due to the amount of data that can be collected from everyday transactions.
Nuggets specializes in decentralized identity systems that give people control over how their data is used with every transaction. To enhance privacy, the technology uses zero-knowledge proofs that allow users to verify information without revealing the underlying data.
“Decentralized digital identity is probably the most private design that can fulfill this role,” Johnson said. “It’s more about fundamentally changing ownership and control over people’s identity and privacy.”