Technical Framework Proposed for Canadian Digital Dollar
The Bank of Canada has released a new research paper outlining a technically viable system design for a retail central bank digital currency (CBDC). The study introduces OpenCBDC 2PC, a model developed in collaboration with MIT’s Digital Currency Initiative, emphasizing speed, privacy, and decentralization. This marks a renewed focus on the digital Canadian dollar, despite the central bank’s 2024 announcement to delay retail CBDC development unless public demand increases.
Privacy at the Core of the Design
A primary focus of the proposal is enhancing user privacy—a critical concern globally in CBDC debates. The system is designed to separate personal identity from transaction data, allowing non-registered users to hold funds in self-custodied wallets. These users can transact without revealing their identities to banks or intermediaries.
Even registered users benefit from enhanced privacy protections, as the central bank would not have access to personal data or transaction histories. To further safeguard privacy, the paper proposes advanced cryptographic tools like zero-knowledge proofs to obscure transaction amounts from the core processing layer. These features aim to offer greater privacy than current digital payment systems.
Bitcoin-Inspired Architecture Enhances Security and Settlement Speed
Unlike traditional banking systems that maintain balances in user accounts, the proposed CBDC would rely on unspent transaction outputs (UTXOs), similar to the model used in Bitcoin. Transactions are processed in two steps: updating the core ledger and transferring funds between wallets. This structure enables real-time settlements while maintaining strong privacy protections from financial institutions and governments.
Integration and Performance Challenges Ahead
While technically promising, the design faces significant implementation challenges. The report highlights the complexity of integrating the architecture with existing retail payment systems, such as point-of-sale terminals. Additionally, scalability and performance during audit or system recovery processes remain unresolved and will require further engineering improvements.
No Immediate Launch Planned, But Political Support Possible
Although the Bank of Canada emphasizes that this research is not a commitment to launch a CBDC, the study offers a detailed technical foundation for a future rollout. The timing aligns with potential political backing—Prime Minister Mark Carney, a known CBDC advocate, expressed support for digital currencies in his 2021 book.
In conclusion, while uncertainty surrounds the official launch, the Bank of Canada has taken a decisive step forward in creating a privacy-focused digital dollar tailored for retail use.
Disclaimer
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