Project Tourbillon, an initiative led by the Bank for International Settlements (BIS) Innovation Hub Swiss Centre and supported by the Swiss National Bank (SNB), explored the feasibility of a retail central bank digital currency (CBDC), finding that it is possible to implement a CBDC design that provides anonymity to the payer and which is scalable and secure.
In a new report released in November 2023, BIS shares details of the project, outlining findings of their efforts.
Project Tourbillon, which had been running since at least late-2022, saw the development and testing of two CBDC prototypes based on the eCash design by American computer scientist, cryptographer and inventor David Chaum.
These prototypes were designed to address three features simultaneously: privacy, by enabling payer anonymity, security, by implementing quantum-safe cryptography (QSC), or algorithms that are resistant to attacks by both classical and quantum computers; and scalability, by testing these systems’ ability to handle a growing number of transactions using payment data.
They leveraged the existing two-tier banking system and involved four parties: a central bank, commercial banks, consumers and merchants.
First, consumers and merchants were handed deposit accounts with banks, while banks were given reserve accounts with the central bank. Consumers and merchants were then required to be initially onboarded by their respective banks to ensure that know-your-customer (KYC) procedures were met.
Once onboarded, consumers and merchants were able to install and use the Tourbillon apps on their mobile devices: the consumer Tourbillon app allowed consumers to withdraw, hold CBDCs via self-custody, and make payments, while the merchant Tourbillon app allowed businesses to request payments, receive payments and view the status of payments.
Tourbillon application, Source: Project Tourbillon: Exploring privacy, security and scalability for CBDCs, Bank for International Settlements Innovation Hub Swiss Centre, Swiss National Bank, Nov 2023
To use CBDCs, consumers were required to request a withdrawal through their bank, which debited their deposit account and forwarded the request to the central bank. The central bank then issued CBDCs, debiting the bank’s reserve account, and sending the CBDCs to the consumer.
Consumers could then hold the CBDCs and later use them to pay various merchants.
As of merchants, once they received CBDCs as payment, they submitted them to their bank, which forwarded them to the central bank. After verification, the central bank credited the merchant’s bank reserve account, and the merchant’s bank credited the merchant’s deposit account.
Tourbillon high-level architecture, Source: Project Tourbillon: Exploring privacy, security and scalability for CBDCs, Bank for International Settlements Innovation Hub Swiss Centre, Swiss National Bank, Nov 2023
Challenges and considerations
According to the report, Project Tourbillon concluded its experiment successfully, revealing that it is possible to develop a retail CBDC that’s anonymous, secure and scalable.
But despite its successful completion, Project Tourbillon also revealed three critical areas for further development.
Firstly, Project Tourbillon showed the challenges of implementing QSC and the ensuing reduction in transaction processing speed brought about these technologies. Hence, the report advises for further research and experimentation to enhance QSC functionality, efficiency, and to determine a safe transition from current cryptography to QSC.
Secondly, although Tourbillon confirms the feasibility of the eCash design, the report notes the potential for improvement in privacy, security, or scalability based on evolving requirements. Modeling the trade-offs between privacy, security and scalability and the extent to which they impact each other will be crucial for advancing the prototypes, it says.
Finally, future work should explore how an eCash-based design could be implemented. This includes considering additional use cases, such as offline payments, and exploring economic viability with a sustainable business model, the report concludes.
Project Tourbillon is the latest CBDC project led by BIS in which SNB is evolved. It follows initiatives such as Project Mariana, a collaboration that tested the cross-border trading and settlement of wholesale CBDCs developed jointly with Bank of France and the Monetary Authority of Singapore (MAS); Project Jura, a collaboration involving Bank of France, BIS, SNB and a private sector consortium that explored the direct transfer of euro et Swiss franc wholesale CBDCs between French and Swiss commercial banks on a single distributed ledger technology (DLT) platform operated by a third party; and Project Helvetia, a multi-phase investigation by BIS, SNB and Swiss financial infrastructure operator SIX on the settlement of tokenized assets in CBDC.
Building on findings of Project Helvetia, SNB launched this month a pilot project with a wholesale CBDC (wCBDC) on the SIX Digital Exchange (SDX). The pilot, which is scheduled to run from December 2023 to June 2024, allows for real bond transactions to be settled using a wCBDC. Several banks are taking part in the pilot, including Commerzbank, Hypothekarbank Lenzburg and UBS.
Despite a clear keenness in CBDC, the Swiss central bank has said that the initiative “does not constitute a commitment on the part of the SNB to introduce wholesale CBDC on a permanent basis.”
Featured image credit: Edited from freepik
The post Swiss-Backed CBDC Project Explored Feasibility of Cash-Like, Anonymous Digital Currency appeared first on Fintech Schweiz Digital Finance News - FintechNewsCH.
Full story here Are you the author?
You Might Also Like
Miles & More and qiibee Transform Loyalty Rewards with Blockchain
2023-12-14
Miles & More, the loyalty program of the Lufthansa Group, has partnered with blockchain-based B2B marketplace qiibee to allow small and mid-size enterprises (SMEs) to join the program easily.
The key highlight of this collaboration is the integration of blockchain technology, which simplifies the onboarding process for SMEs while ensuring the secure and efficient management of loyalty rewards.
qiibee’s blockchain-based marketplace offers instant, cost-effective transactions and guarantees full data privacy control. Through this integration, Miles & More members gain access to a broader and more diverse network of partners, including regional businesses.
The partnership also aims to enhance connectivity between enterprises and customers, with plans to onboard more partners and launch a
Swiss National Bank Launches Wholesale Central Bank Digital Currency Project
2023-12-04
On 1 December 2023, the Swiss National Bank – together with five Swiss and one German commercial bank – started a pilot project with central bank digital currency for financial institutions (wholesale central bank digital currency) on the regulated platform of SIX Digital Exchange (SDX).
With this pilot, called Helvetia Phase III, the SNB will for the first time issue real wholesale CBDC in Swiss francs on a financial market infrastructure based on distributed ledger technology (DLT). The SNB is thus moving its work from test environments into production and is making wholesale CBDC available for the settlement of real bond transactions. The banks involved will carry out the transactions on the DLT platform as intermediaries for issuers and investors. The tokenised bonds will be settled
BitMEX Engages Zühlke to Transition Security Operations
2023-11-21
Crypto Derivates Platform BitMEX recently collaborated with Zühlke to enhance their application security program. This partnership focused on refining BitMEX’s security operations and prioritizing new application functionalities, with a particular emphasis on integrating DevSecOps processes across their development pipeline.
The initiative was driven by the need to adapt to the changing security landscape and the fast pace of software development. BitMEX, known for its stringent security measures and having never lost cryptocurrency assets, recognized the necessity of updating their security testing methods.
Zühlke’s role was significant in helping BitMEX transition from ad-hoc security testing to a systematic DevSecOps model within 12 months. They assisted in implementing integrated
Eine digitale Schweizer Franken Anleihe für den Kanton Basel Stadt
2023-11-20
Der Kanton Basel-Stadt begibt als Pionier mit Unterstützung der Basler Kantonalbank (BKB) eine der ersten digitalen Schweizer-Franken-Anleihen.
Die BKB arbeitet im Pilotprojekt «Helvetia III» der Schweizerischen Nationalbank (SNB) mit der SIX Digital Exchange (SDX) und fünf weiteren Geschäftsbanken zusammen. Die auf der Distributed-Ledger-Technologie (DLT) basierende Infrastruktur der SDX ermöglicht die Emission und den Handel von tokenisierten Wertschriften.
Im Rahmen dieses Pilotprojekts gibt die SNB erstmals digitales Zentralbankgeld für Finanzinstitute (sog. wholesale Central Bank Digital Currency, wCBDC) auf dieser Infrastruktur aus. Dabei handelt es sich um eines der weltweit ersten Pilotprojekte zur Abwicklung realer Transaktionen in digitalem Zentralbankgeld.
Die digitale
Tags: Blockchain/Bitcoin,Featured,newsletter,Switzerland
