The Privacy Paradox of CBDCs

Abstract

The advent of central bank digital currencies (CBDCs) has underscored multifaceted privacy concerns identified in literature, particularly in user monitoring and data security. PETs, such as zero-knowledge proofs and homomorphic encryption, emerge as critical in reconciling regulatory compliance with user anonymity. Encryption safeguards CBDC transactions, while multifactor authentication bolsters transaction integrity. Governance structures play a pivotal role in upholding stringent security standards. This discussion navigates through diverse CBDC models and their privacy implications, probing into the intricacies of user monitoring, data breaches, and biometric data protection. Future research should aim to refine PETs, harmonize regulatory frameworks, and fortify biometric data security. The pursuit of robust privacy measures necessitates a delicate equilibrium between technological innovation and regulatory efficacy, fostering trust and compliance amidst the evolving landscape of CBDC privacy concerns.