The Federal Reserve published a paper that explores various privacy strategies in digital asset ecosystems. A key point is that cash like anonymity is very unlikely in digital systems. Confidentiality from certain parties is the best to hope for.
It asserts the desire for cash-like anonymity is based on a misunderstanding of how digital systems work. Even with encryption, activity logs and audit trails leak small pieces of information. Of course, current versions of most public blockchains reveal an enormous amount of data which is easy to link to an identity by tracing wallets back to exchange onramps.
Although it may be true that anonymity is almost impossible to achieve in the digital realm, people desire it. While comparing digital systems to cash at a practical level, the paper doesn’t acknowledge the broad recognition that digital money will accelerate the crowding out of cash.
…It’s not surprising that the Federal Reserve is publishing a paper on privacy. There are two key reasons whey CBDCs might fail. One is the populist pushback that’s privacy related. Sometimes that’s based on conspiracy theories. But as the Financial Times reinforced this week, there is substance to concerns. Even if a current government has good intentions, a future one might not. The second reason that CBDCs might fail is if the public doesn’t see any usability benefits over the existing private solutions already in use.
In a recent paper, the RBC asserts that a U.S. digital dollar has the potential to politicize the role of the Chair of the Federal Reserve.
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