Home Cyber Crime & Security UK researchers examine CBDCs and cybersecurity

UK researchers examine CBDCs and cybersecurity

'Britcoin'? UK chancellor Rishi Sunak made a jokey reference to a potential digital pound in a tweet in April | Credit: PublicDomainPictures: Pixabay

A publicly-funded multi-organisation research initiative focused on central bank digital currency (CBDC) design and cyber-security has kicked off in the UK.

‘Project FIRE’, which stands for ‘Future Infrastructure for Retail Remittances’, is exploring the infrastructure and devices required to enable the use of a token-based retail CBDC that replicates important features of cash: accessibility, non-discrimination, privacy and custodianship by the owner.

The PETRAS National Centre of Excellence for Internet of Things (IoT) Systems Cybersecurity, a consortium of 22 research institutions, is funding the project, which has the objective of ‘providing thought-leadership’ in the rapidly developing CBDC research space.

The research is being undertaken while the Bank of England (BoE) steps up its own explorations around the possibility of launching a digital pound – dubbed ‘Britcoin’ in a tweet by UK chancellor Rishi Sunak in April.

Project FIRE is being led by PETRAS’s ‘home’ institution University College London (UCL) alongside a Spain-headquartered tech-focused consultancy called Everis. The British Standards Institution (BSI) and Edinburgh University are also involved.

‘New threats’ from numerous angles

Globally an increasing number of central banks worldwide have started experimenting with retail CBDCs (also known as ‘general purpose’ CBDCs – CBDCs that would be available to the general population) – albeit most of those doing so have yet to commit to actually launching a CBDC. There is also a very rapidly growing global catalogue of CBDC research undertaken by both the public and private sector.

Cybersecurity is among many areas that those developing CBDCs need to address, while privacy was the most-requested feature of a potential digital euro in a consultation run by the European Central Bank.

“Modern digital payments provide a way to efficiently conduct transactions at a distance, and they have great potential to streamline electronic record-keeping and regulatory compliance. At the same time, they also introduce new threats to privacy, accessibility and fairness for consumers, as well as new risks to monetary sovereignty and national security for governments,” said UCL’s project lead, Dr Geoff Goodell, in a press release.

By offering consumers a way to directly hold tokens representing obligations of the central bank on inexpensive devices, non-custodial digital currency offers a chance to realise the benefits without incurring the harms. Through the FIRE project, we shall explore how consumers and businesses will interact with non-custodial digital currency, including the devices, the processes, and the interfaces to existing financial infrastructure and services.”

The BSI’s sector lead for digital, Tim McGarr, meanwhile said: “Techniques to allow ordinary citizens to hold digital assets outside the context of accounts are still in their nascent stages, and we anticipate that this project will allow us to engage a variety of industry and government stakeholders in an evaluation of the requirements and constraints facing future retail payment technology.”

Growing global interest

The Bahamas became the first country to launch a fully deployed a digital version of a fiat currency – the ‘Sand Dollar’ – almost a year ago. In April this year, Eastern Caribbean nations rolled out blockchain-based digital currency ‘DCash’ within their currency union.

China is at an advanced stage of developing its CBDC, known as the e-CNY or ‘digital yuan’, and its officials’ pronouncements on the topic are watched closely given the country’s size and international significance.

The Bank for International Settlements (BIS) set out its recommended approach to fundamental elements of CBDC design in June, explaining that retail CBDCs come in two ‘variants’: a cash-like design, allowing for so-called token-based access and anonymity in payments; or an account-based design built on verifying users’ identity ‘rooted’ in a digital ID scheme. BIS itself states a preference for account-based systems built on digital ID.

Last week the Monetary Authority of Singapore announced 15 finalists for its ‘Global CBDC Challenge’, which aims to showcase solutions that will benefit all those who are investigating CBDC globally. The winners will be decided at the Singapore FinTech Festival from 8-12 November. Those entering the competition were invited to address 12 problem statements covering topics such as inclusivity, interoperability and programmability.

UK government’s funding flowing

Project FIRE is one of 18 research projects being enabled by £3.6m (about $4.98m) of PETRAS funding for cybersecurity-related projects that ‘facilitate engagement’ between universities, private sector and government.

PETRAS (which stands for ‘Privacy, Ethics, Trust, Reliability, Acceptability and Security’) is itself part of a broader £30.6m programme entitled ‘Security of Digital Technologies at the Periphery’ (SDTaP), which is financed by the Strategic Priorities Fund of UK Research and Innovation (UKRI),  a non-departmental government body, and led by the Engineering and Physical Sciences Research Council.

Everis is part of Japan-headquartered IT and business services company NTT DATA Group. The relationship between UCL and Everis started last year as part of an industry exchange programme.

*** One of the two chairs of the BoE-HM Treasury CBDC taskforce set up earlier this year is leaving the civil service to join a bank, according to reports. Katharine Braddick, who is HMT’s director-general of financial services and has been co-chairing the taskforce with the BoE’s Sir Jon Cunliffe, has reportedly agreed to join Barclays. Members of the BoE’s ‘CBDC Engagement Forum’ and ‘CBDC Technology Forum’, whose creation was announced earlier this year, are yet to be announced.

FURTHER READING

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Ian is editor of Global Government Fintech and also writes for media including City AM and #DisruptionBanking. He is former UK director for the pan-European media network Euractiv (2011-2018), editor of Public Affairs News (2007-2011) and news editor of PR Week (2000-2007). He was shortlisted for ‘Editor of the Year’ at the British Society of Magazine Editors (BSME) Awards in 2010. He began his career in Bulgaria at English-language weekly the Sofia Echo.