Bank of England partners with Nuggets to improve CBDC security

UK-based Nuggets has partnered with the Bank of England to experiment and design a privacy and identity layer for the UK’s CBDC.

The goal of this experiment is to design a system that could prevent the tracking and correlation of transactions while maintaining a high standard of fraud and anti-money laundering prevention. In the event of a CBDC introduction in the UK, the identity layer envisioned by Nuggets would help users to maintain their privacy and remain in control of their data. 

Nuggets offers a reusable, interoperable decentralised identity with a merit-based reputation that travels with the user, as well as a non-custodial cache for digital assets. 

Nuggets’ design leverages Zero-Knowledge proofs (ZKPs), which enable the validation of information without exposing the underlying data. This technology allows users to confirm their identities while remaining in complete control over who accesses their data. In essence, the system has the potential to protect user privacy while minimising CBDC surveillance concerns. 

The identity layer is able to establish a secure non-correlatable connection through Peer DIDs, a unique and confidential one-off identifier associated with an individual. The system supports the exchange of verified credentials that let users confirm their identity and comply with Anti-Money Laundering (AML) and Know-Your-Customer (KYC) regulations. After setting up the account, users are able to perform CBDC payments and verify themselves in a private way without providing additional identity verifications or going through KYC or AML checks.

More information about the digital pound

According to the official press release, the UK Treasury and Bank of England revealed that the UK’s CBDC could be launched by the end of the decade. Some of the main benefits of the digital pound would include cheaper and easier cross-border payments support, as well as improved financial inclusion across the country. 

However, there are certain risks involved with launching a CBDC, particularly in the context of individual privacy and monitoring. The collaboration between the Bank of England and Nuggets aims to address these concerns. 

Nuggets officials talked about this collaboration and expressed their commitment to providing solutions designed to protect individual privacy. They also revealed their plans to test various use cases and solutions designed to make CBDC operations more private and secure for regular users. They highlighted the importance of a proper CBDC design, one that would support identity owned and controlled by the user with privacy, security, and no tracking or correlation.