Someone needs to remind the European Commission that it can’t have its cake and eat it too when it comes to regulating a future central bank digital currency (CBDC). An EC proposal this week for regulating a CBDC insisted that it must protect privacy, describing a system of NFC chip-based offline payments in which nobody would be able to see what people are paying for. However, a review of the proposal’s explicit record-keeping provisions for payment service providers challenges those intentions. Recent European government crackdowns on cryptographic privacy further demonstrate that tolerance for people engaging in private, non-monitored transactions is low.
Governments must find a compromise that allows for digital privacy while still enabling them to uncover users’ identities when needed. This would involve erecting a host of cryptographic and legal barriers that would make it extremely cumbersome and difficult for governments to snoop on users, requiring that only under the most extreme circumstances and with a court order, might they be able to access the so-called back door. Zero-knowledge proofs and other pro-privacy tech make such models feasible.
In the coming years, online privacy will be elevated in importance, not just for individuals but for businesses, which will start to view their transaction history as a kind of property right. The government that best satisfies that demand could come out as a winner.