BIS Innovation Hub Launches New CBDC Project

The pace of work at the BIS Innovation Hub shows no sign of slowing down, wits its Swiss centre unveiling a new prototype central bank digital currency (CBDC).

Project Tourbillon will explore how to improve cyber security, scalability and privacy in a CBDC environment, something the BIS says has been identified as core features of a CBDC by central banks. Designing them, however, involves complex trade-offs between these three elements, the BIS says, explaining that higher resiliency against cyber-attacks, especially from quantum computers, requires additional cryptography, which can slow down payment processing. “Privacy must be weighed against the need to counter money laundering, terrorism financing and other illicit payments,” it states.

Project Tourbillon aims to reconcile these trade-offs by combining proven technologies such as blind signatures and mix networks with the latest research on cryptography and CBDC design suggested by pioneering cryptographer David Chaum and the Swiss National Bank’s alternative member of the governing board, Thomas Moser.

“Digital central bank money can make payments better and more inclusive,” says Morton Bech, head of the BIS Innovation Hub Swiss Centre. “Yet delivering a CBDC involves difficult trade-offs between cyber resilience, scalability and user privacy. Project Tourbillon will build and test a prototype that reconciles these trade-offs and pushes central banks’ technological frontier.”

The BIS says that cyber resiliency supports safe and effective digital payment infrastructures, adding the project achieves this by experimenting with the strongest known type of quantum-resistant cryptography. Scalability, meanwhile, accommodates the potential for high transaction volumes and Tourbillon achieves this by using an architecture that is compatible with, but not based on, distributed ledger technology. By making each transaction separate, the system resources scale linearly, the BIS explains, adding the project seeks to verify the linear scalability of the design with realistic parameters.

The BIS also observes that privacy is an important user requirement but at the same raises issues with regards to countering illicit activities. It says Tourbillon resolves this by providing privacy for the payment sender but not for the recipient. Regulatory and compliance checks will continue to apply.

“Many central banks are researching CBDCs in the context of the digital asset transformation,” says Moser. “I am proud to be a co-author with David Chaum on the eCash 2.0 paper, which is serving as the basis for this project.”

Chaum adds, “I am thrilled to see these important advances in technology being tested out so that there is no doubt that privacy, including the more advanced type introduced here, can co-exist with the strongest type of quantum resistance and truly practical performance. This provides a better level of privacy than cash, with additional guarantees that the privacy cannot be taken from the end user.”