The Bank of Canada has taken an important step to explore the technical feasibility of a digital Canadian dollar, offering a specific system designed for a digital currency from the central retail bank currency (CBDC) focused on simple and daily payments, according to a new research document.
The Central Bank’s research team examined OpenCBDC 2PC, a model developed in collaboration with the Massachusetts Institute of Technology digital currency initiative. This design prioritates confidentiality, speed and decentralization by allowing users to directly hold digital funds, much like digital money.
The new research comes after the Bank of Canada said that it focuses on a retail CBDC last year, saying that it was prepared if the inhabitants of the nation decide that such a product is necessary in the future.
Confidentiality
A major objective of the report is privacy, which is not a big surprise because the CBDCs have triggered a debate in the world, partly on the concerns that they could allow the surveillance of the state of financial activity. Unlike Cash, which is anonymous, a CBDC could theoretically allow a central authority to follow each transaction.
The report suggests that the system separates the personal identity from transaction data, allowing non-registered users to hold funds in self-deputies. Users could then compromise without sharing their identity with a bank or a payment processor. Even for registered users, the central bank would not have access to identifying information or transaction stories.
The report goes further, offering improved protection by potentially using cryptographic techniques such as evidence of zero knowledge to obscure the transaction amounts from the central infrastructure. These features collectively offer a level of confidentiality which, according to the authors, could exceed that of current electronic payment systems.
Bitcoin type structure
Unlike traditional banking systems, where money is stored in user accounts, the report suggests a design that uses “unatalized transaction outputs” (Utxos) – A structure more often associated with Bitcoin.
The system deals with two -step transactions: update of a large book and transfer of funds from one user to another. This approach supports the regulation in real time and offers a higher degree of confidentiality of banks and government institutions.
Challenge
Although the report presents a detailed technical solution to a potential Canadian dollar, it also identifies potential obstacles.
One of the main obstacles is that the integration of the architecture proposed to the existing retail payment infrastructure could require substantial technical upgrades, including in the way in which the point of sale terminals manage digital transfers of the species type.
In addition, although the system is evolving in theory, performance reductions during audits and system recovery operations require other engineering works to meet the quality of production standards.
The document clearly stipulates that this is not a commitment to launch a CBDC. However, the results expose a concrete technical basis for what such a system could look like – the one who balances user confidentiality, institutional control and operational resilience.
The implementation of the central bank remains a question, given the controversy surrounding the CBDC. However, the time of the report could be right because the new Prime Minister of Canada, Mark Carney, was cited in his 2021 book as a supporter of the CBDC.
“The most likely future of money is a stablecoin of the central bank, known as the Central Bank or CBDC’s digital currency,” he wrote in his book.
