We recently announced our participation in the Central Bank of Israel’s CBDC project, alongside companies like PayPal and Fireblocks. The Bank of Israel has been exploring CBDCs since 2018 and will now examine the implementation of a digital Shekel, and explore ways to build out advanced functionality and an ecosystem around it, using COTI V2.
According to a Bank for International Settlements (BIS) survey in 2022, 93 percent of central banks are exploring CBDCs and 58 percent consider that they are likely to, or might possibly, issue a retail CBDC in the short to medium term.
The bottom line is that CBDCs are coming, fast.
By leveraging blockchain technology, central banks have the potential to achieve several game changing objectives for the financial world, such as financial inclusion for the underbanked, improving payment efficiency and helping to better control monetary policy with new tools such as programmable money.
But this comes at a price: a stark lack of privacy for those using CDBCs. Blockchains are transparent by nature and there are concerns around the risks associated with increased financial surveillance.
In this article, we will take a look at how COTI V2 has the potential to solve privacy and confidentiality concerns related to CBDCs.
What are central bank digital currencies?
Central bank digital currencies (CBDCs) are digital versions of a country’s fiat currency, issued and backed by the nation’s central bank.
Unlike cryptocurrencies like Bitcoin, which operate on decentralized networks, CBDCs are centralized and regulated by the issuing authority. CBDCs present a more efficient, inclusive, and resilient payment system in an increasingly digital world, when compared to traditional fiat systems.
By leveraging blockchain technology, CBDCs offer several advantages, such as:
- Reduced overhead costs
- Faster transaction settlement times
- Lower cross-border remittance costs
- Fully traceable transactions and movements
- Automated government programs through smart contracts
- Remote P2P financial services to the unbanked, such as micro lending
But if CBDCs are going to create a digital evolution for finance, why do so few exist?
The biggest roadblock to CBDC design and adoption is the lack of confidentiality.
A pivotal study conducted by the Bank for International Settlements (BIS) demonstrated that respondents demand privacy protections in CBDCs usage. The study also showed a correlation between the privacy benefits of CBDCs and people’s willingness to adopt them, especially for transactions involving sensitive corporate or personal data.
So, to achieve adoption, the design of CBDCs must strike a balance between the ability to audit transactions, which is required for regulatory compliance, and the provision of user privacy.
This is where COTI V2 comes in.
COTI V2 introduces confidentiality for CBDCs with Garbled Circuits
COTI V2 is a confidentiality Layer 2 on Ethereum, built with a groundbreaking encryption technology that is fast, secure, and can run on any device.
For the first time on blockchain, we use a multi-party computation (MPC) breakthrough for preserving private information — a technique called Garbled Circuits.
COTI V2’s infrastructure enables fast and light privacy solutions, capable of running on any device, that can power world-class user experiences. Additionally, it can handle transactions between multiple parties simultaneously while preserving confidentiality of all parties involved.
With Garbled Circuits, COTI V2 facilitates third party data sharing, verification, and computation without compromising the confidentiality of the underlying personal information — all at the scale and speed that is needed for institutional use cases such as CBDCs.
What does this mean for CBDC Design?
With COTI V2, activity on the blockchain becomes encrypted but fully verifiable. Citizens can use CBDCs and keep their activity and personal information private, while selectively providing access to oversight and regulatory bodies.
CBDCs powered by COTI V2 provide an enhanced confidentiality solution without anonymity.
Institutions, companies, and individuals will be able to interact with the financial world confidentially, while at the same time complying with global financial regulations:
- Multinational corporations benefit from COTI V2-powered CBDCs for complex, multi-party supply chain transactions, ensuring confidentiality across borders.
- Financial institutions gain a powerful tool for high-volume, rapid transaction processing, leveraging COTI V2’s superior speed compared to other privacy solutions.
- Government agencies can securely manage sensitive data like tax records while automating fiscal policies through COTI V2’s CBDC capabilities.
COTI V2 enables a wide range of use cases that require both confidentiality and compliance, paving the way for widespread adoption of CBDCs across various sectors.
A paradigm shift for CBDCs with COTI V2
As central banks continue to explore the potential of developing CBDCs, balancing regulatory compliance with privacy remains an important challenge in order for CBDCs to see user adoption.
With COTI V2, we now offer a compelling answer to this challenge. Keep an eye out on our channels for more updates on our CBDC project with the Central Bank of Israel.
COTI V2’s groundbreaking approach to enabling privacy to CBDCs paves the way for a more secure, and privacy-first digital financial world.
Stay COTI
For all of our updates and to join the conversation, be sure to check out our channels:
Website: https://coti.io/
X: https://twitter.com/COTInetwork
YouTube: https://www.youtube.com/channel/UCl-2YzhaPnouvBtotKuM4DA
Telegram: https://t.me/COTInetwork
Discord: https://discord.gg/9tq6CP6XrT
GitHub: https://github.com/coti-io
