Bank of Canada took a significant step in exploring the technical feasibility of a digital Canadian dollar that suggested a specific system designed for a retail bank’s digital currency (CBDC) Focused on simple, everyday payments, according to a new research document.
The Central Bank’s research team examined the OpenCBDC 2PC, a model developed in collaboration with the Massachusetts Institute of Technology’s Digital Currency Initiative. This design prioritizes privacy, speed and decentralization by allowing users to keep digital funds direct, as do digital cash.
The new research comes after the Bank of Canada said it is moving its focus away from a Retail CBDC last year and said it was prepared if people in the nation decide such a product in the future.
Privacy problems
A major focus of the report is privacy, which is not a big surprise because CBDCs have given rise to debate around the world, partly about concerns they could enable state monitoring of economic activity. Unlike cash anonymous, a CBDC theoretically allows a central authority to trace any transaction.
The report suggested that the system separates personal identity from transaction data, allowing non-registered users to bear funding in self-defense wallets. Users could then act without sharing their identity with a bank or payment processor. Even for registered users, the central bank would not have access to identify information or transaction history.
The report goes ahead and suggests improved protection by potentially using cryptographic techniques, such as zero-knowledge proof to hide transaction amounts from the core infrastructure. These features collectively offer a level of privacy, as the authors say may exceed the current electronic payment systems.
Bitcoin-like structure
Unlike traditional banking systems where money is stored in user accounts, the report suggests a design that uses “unused transaction outputs” (Utxos) – A structure that is more commonly associated with Bitcoin.
The system processes transactions in two steps: Updating a core headbok and transferring funds from one user’s wallet to another. This approach supports real -time settlement and offers a higher degree of privacy from both banks and government institutions.
Challenges
While the report establishes a detailed technical solution to a potential digital Canadian dollar, it also identifies potential obstacles.
One of the most important obstacles is that integrating the proposed architecture with existing retail payment infrastructure may require significant technical upgrades, including in the way of the terminals of the sale handling digital cash -like transfers.
Although the system is scalable in theory, performance dips under revisions and system recovery operations must further engineering to meet standards of production quality.
The paper is clearly stated that this is not an obligation to launch a CBDC. However, the results lay a specific technical foundation for what such a system might look like – one that balances users’ privacy, institutional control and operational resilience.
Whether the central bank will implement it remains a question considering the controversy around CBDC. However, the time of the report could be right when Canada’s new Prime Minister Mark Carney was quoted in his book from 2021 as a supporter of CBDCs.
“The most likely future of money is a central bank’s stableecoin, known as a central bank’s digital currency or CBDC,” he wrote in his book.
