Digital Cash Offers 'Cash Privacy,' But Threatens Users' Bank Data Breaches: BIS

BIS says digital cash can achieve 'cash privacy,' but the technology is not yet ready for production due to risks such as bank data breaches.

The BIS said digital cash could achieve the "privacy of cash", however the technology is not yet ready for production due to risks such as bank data breaches.

The Bank for International Settlements (BIS) said digital cash could offer the same privacy features as cash, but highlighted remaining risks, including how potential banking data breaches could expose users' personal data.

While digital cash could achieve the "privacy of cash," the technology stack is not yet "production ready," the BIS wrote in its Project Aurum Phase 2 report released on Tuesday.

BIS said this phase will implement a privacy-preserving digital cash prototype using BIS's existing Aurum codebase to take a balanced approach between complete anonymity and complete transaction transparency.

The BIS found that a bank compromise might expose its customers' information, but would not reveal the identity of the other party's customers. According to the report, a compromise at the authentication level alone is not enough to expose end users.

The BIS report examines the technical features required to create a privacy-preserving central bank digital currency (CBDC). Critics of CBDC have previously raised concerns about the technology's potential financial surveillance capabilities.

In 2023, the Central Bank of Brazil released its experimental CBDC source code, and within days, people noticed the monitoring and control mechanisms built into the code that allowed the central bank to block or reduce user funds in CBDC wallets.

Earlier this year, US President Donald Trump banned federal agencies from issuing CBDCs in January due to financial stability and privacy concerns.