In a report detailing the outcome of the first phase of drex, the national CBDC pilot, the Central Bank of Brazil acknowledged that none of the anonymity and privacy solutions tested met the project’s needs.
Central Bank of Brazil Still in Search of Privacy Solution for CBDC
The pilot of the Brazilian central bank digital currency (CBDC) has hit a roadblock. In a recently issued report detailing the results of the first phase of the pilot project, which finished last year, the Central Bank acknowledges that the possible implementation of this currency still lacks a key attribute: privacy.
The report states that, even after having examined several security approaches and technologies, the pilot has been unable to find an application that satisfies the needs of drex.
Three solutions were tested: Zether (by JPMorgan and Consensys), Rayls (by Parfin), and Starlight (by EY). While all of these serve to obfuscate the details of the transactions for third parties, they also hide them from the authorities, who must be able to review them for monitoring and compliance purposes, serving as an equivalent to bank transfers.
The document remarks that this feature is essential, as it allows authorities to perform their legal duties. “Without this ability, authorities would not be able to monitor suspicious activity, prevent fraud, or ensure compliance with applicable laws and regulations, compromising the security and integrity of the drex platform,” the bank assessed.
This falls in line with earlier statements from the central bank, which launched a new pilot phase last year to examine new possibilities to solve this problem, taking advantage of this opportunity to include new projects to be tested.
Read more: Brazilian CBDC Pilot Postponed to 2025 Due to Inefficiency of Privacy Solutions
However, in the report, the bank clarifies that its priority is to solve this issue and that it won’t include these new proposals in the second phase of the CBDC. The institution ascertained that these 50 proposals shortlisted “did not present sufficient differentiation in relation to the cases already being tested to justify the allocation of resources necessary for their monitoring.”
