Robert Bench, the Federal Reserve Bank of Boston’s director of applied research, thinks privacy should be a focus during the creation of digital money, not an afterthought.
“Privacy is a question that we have learned is critical from a technical perspective,” Bench said during a Chamber of Digital Commerce panel on Friday:
“One of our learnings is that the questions of privacy and identity must be considered at the earliest stage of the architecture. Making privacy or identity an ad hoc process is suboptimal from both a privacy or identity perspective, and most importantly from a security perspective.”
A largely digital world often means less privacy. Money is no exception. While countries look toward central bank digital currencies, or CBDCs, payments are less private than the cash transactions of yesterday. CBDCs may or may not give users privacy, however.
“It’s something that policy makers are going to need to think about early,” Bench said of privacy. “When you add it on later, it doesn’t work as well.”
Bench’s comments answered a question from panel moderator and former U.S. Commodity Futures Trading Commission chairman Chris Giancarlo, who asked about privacy considerations when it comes to a U.S. CBDC, as well as other digital money.
In the discussion, Tether (USDT) co-founder Craig Sellars looked to physical cash as the benchmark for necessary privacy in the digital world. “They have certain unremovable features: Fungibility, privacy and anonymity at the peer-to-peer level,” he said:
“We should shift our questioning to this: If we have the technology to preserve those exact features of paper dollars, why should we accept digital dollars with any fewer freedoms? I argue that we shouldn’t and we mustn’t.”
Sellars said the U.S. has “an open field” ahead in terms of building a private and cash-like CBDC, as opposed to the “walled garden” structure used in competing countries’ CBDC endeavors.
In contrast with this pro-privacy sentiment, however, the U.S. Internal Revenue Service recently hired two crypto analytics firms to break the privacy technology behind the anonymity-focused Monero (XMR) asset.