According to the Bank for International Settlements, offline payments with CBDCs raise new threats related to counterfeiting, fraud, & privacy concerns.
The Bank for International Settlements (BIS) is actively exploring opportunities for offline payments concerning a central bank digital currency, or CBDC.
On May 11, the BIS Innovation Hub Nordic Centre issued a comprehensive handbook researching how CBDCs could work for offline payments.
The guide was written in collaboration with technical consultants Consult Hyperion, and it addresses objectives for resilience, cash resemblance, accessibility, & different offline CBDC features.
Named “ Project Polaris, ” the paper highlights new potential threats stemming from offline payments with CBDCs, including counterfeit or privacy concerns.
According to BIS and Hyperion, offline CBDC payments pose privacy risks, as they can “ both support anonymous deals and be privacy-revealing depending on the design. ”
Some of the listed privacy concerns include the position of privacy protection offered by the worth transfer protocol. " If the offline worth transfer protocol doesn't support privacy by design, likewise offline payments can never be anonymous," the handbook reads.
Offline CBDC payment deals similarly raise privacy or even fraud issues when it comes to the identification and verification of counterparty users.
In some cases, it may be crucial for offline CBDC payees or payers to identify the counterparty, and similar deals may not consistently involve face-to-face contact. Central banks would have to take into account similar situations when designing offline CBDCs, BIS wrote, adding:
“The payer may want to be assured of the identity of the payee, the details given to them are valid and their payment goes to the right place. [...] Impersonation fraud is a potential area of risk that central banks need to consider with regard to privacy.”
The paper similarly mentions the significance of interoperability and threat management systems for offline payments, stressing the want for the capability to detect potential breaches of offline purses.
“ The roles and responsibilities of the ecosystem in supporting offline payments require to be better defined, and collaboration between public and private sectors will be necessitated, ” the handbook notes.
Related: BIS, Bank of England conclude DLT settlements pilot
Offline functionality is a major feature of numerous CBDC projects presently being developed by global central banks. As preliminarily reported, nations like Australia, India, and Russia have been working out on offline CBDC payment technology.
Australia’s central bank plans to embark on a “ live pilot ” of a CBDC that features offline payments “ in the coming months. ” The Reserve Bank of India has been testing CBDC offline functionality since March 2023. Russia’s central bank expects to present an offline mode for the digital ruble by 2025.
(HELEN PARTZ, Cointelegraph, 2023)