5 things you need to know about Central Bank Digital Currencies

Central Bank Digital Currencies

Guest blog post by Mirela Ciobanu, The Paypers

The topic of Central Bank Digital Currency (CBDC) is gaining momentum. Across the globe, many CBDC initiatives aim to digitalise payments, support financial inclusion, make cross border payments faster and cheaper, support fiscal transfer, etc. What is firing up discussions around CBDC and why is it important today?

Adoption of new technologies and understanding of their huge potential to support and stimulate our life has caused the world to change a lot in the last year. The current pandemic has triggered the decline of cash usage to avoid getting the virus and safeguard the most vulnerable ones (health-wise). Economic wise, as many governments wanted to protect their citizens and directly stimulate the economy down to every citizen, they offered ‘helicopter money’ via digital wallets.

Counterintuitive Cryptography

There was a post on Twitter in the midst of the coronavirus COV-19 pandemic news this week, that caught my eye. It quoted an emergency room doctor in Los Angeles asking for help from the technology community, saying “we need a platform for frontline doctors to share information quickly and anonymously”. It went on to state the obvious requirement that “I need a platform where doctors can join, have their credentials validated and then ask questions of other frontline doctors”.

This is an interesting requirement that tell us something about the kind of digital identity that we should be building for the modern world instead of trying to find ways to copy passport data around the web. The requirement, to know what someone is without knowing who they are, is fundamental to the operation of a digital identity infrastructure in the kind of open democracy that we (ie, the West) espouse. The information sharing platform needs to know that the person answering a question has relevant qualifications and experience. Who that person is, is not important.

Now, in the physical world this is an extremely difficult problem to solve. Suppose there was a meeting of frontline doctors to discuss different approaches and treatments but the doctors wanted to remain anonymous for whatever reason (for example, they may not want to compromise the identity of their patients). I suppose the doctors could all dress up as ghosts, cover themselves in bedsheet and enter the room by presenting their hospital identity cards (through a slit in the sheet) with their names covered up by black pen. But then how would you know that the identity card belongs to the “doctor” presenting it? After all the picture on every identity card will be the same (someone dressed as a ghost) and you have no way of knowing whether it was their ID cards or whether they were agents of foreign powers, infiltrators hellbent on spreading false information to ensure the maximum number of deaths. The real-world problem of demonstrating that you have some particular credential or that you are the “owner” of a reputation without disclosing personal information is a very difficult problem indeed.

(It also illustrates the difficulty of trying to create large-scale identity infrastructure by using identification methods rather than authenticating to a digital identity infrastructure. Consider the example of James Bond, one of my favourite case studies. James Bond is masquerading as a COV-19 treatment physician in order to obtain the very latest knowledge on the topic. He walks up to the door of the hospital where the meeting is being held and puts his finger on the fingerprint scanner at the door… at which point the door loudly says “hello Mr Bond welcome back to the infectious diseases unit”. Oooops.)

In the virtual world this is quite a straightforward problem to solve. Let’s imagine I go to the doctors information sharing platform and attempt to login. The system will demand to see some form of credential proving that I am a doctor. So I take my digital hospital identity card out from my digital wallet (this is a thought experiment remember, none of the things actually exist yet) and send the relevant credential to the platform.

The credential is an attribute (in this case, IS_A_DOCTOR) together with an identifier for the holder (in this case, a public key) together with the digital signature of someone who can attest to the credential (in thsi case, the hospital the employs the doctor). Now, the information sharing platform can easily check the digital signature of the credential, because they have the public keys of all of the hospital and can extract the relevant attribute.

But how do they know that this IS_A_DOCTOR attribute applies to me and that I haven’t copied it from somebody else’s mobile phone? That’s also easy to determine in the virtual world with the public key of the associated digital identity. The platform can simply encrypt some data (anything will do) using this public key and send it to me. Since the only person in the entire world who can decrypt this message is the person with the corresponding private key, which is in my mobile phone’s secure tamper resistant memory (eg, the SIM or the Secure Enclave or Secure Element), I must be the person associated with the attribute. The phone will not allow the private key to be used to decrypt this message without strong authentication (in this case, let’s say it’s a fingerprint or a facial biometric) so the whole process works smoothly and almost invisibly: the doctor runs the information sharing platform app, the app invisibly talks to the digital wallet app in order to get the credential, the digital wallet app asks for the fingerprint, the doctor puts his or her finger on the phone and away we go.

Now the platform knows that I am a doctor but does not have any personally identifiable information about me and has no idea who I am. It does however have the public key and since the hospital has signed a digital certificate that contains this public key, if I should subsequently turn out to be engaged in dangerous behaviour, giving out information that I know to be incorrect, or whatever else doctors can do to get themselves disbarred from being doctors, then a court order against the hospital will result in them disclosing who I am. I can’t do bad stuff.

This is a good example of how cryptography can deliver some amazing but counterintuitive solutions to serious real-world problems. I know from my personal experience, and the experiences of colleagues at Consult Hyperion, that it can sometimes be difficult to communicate just what can be done in the world of digital identity by using what you might call counterintuitive cryptography, but it’s what we will need to make a digital identity infrastructure that works for everybody in the future. And, crucially, all of the technology exists and is tried and tested so if you really want to solve problems like this one, we can help right away.

Privacy expectations

[Dave Birch] Interviewed in New Scientist, Jacques Stern, the head of the Laboratory of Computer Science at the Ecole Normale Superieure in Paris (called the “high priest of French cryptography” in the article), says that “In future, people will look to cryptograpghers to protect their privacy”. I couldn’t agree more that this should be true, but it’s not clear to me at all that it is true. We’ve got to find new ways to communicate the rich and diverse world of digital identity to the public, to the public sector and to their management consultants. If we can’t, they’ll never be in a position to demand privacy or expect it to be implemented as part of the systems that they interact with.

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