The BIS Innovation Hub Swiss Center today announced a new Central Bank Digital Currency (CBDC) Tourbillon research project with David Chaum, cryptographer and founder of eCash, a form of digital cash that was put to the test in the 1990s. With Thomas Moster, alternate member of the board of directors of the Swiss National Bank (SNB), Chaum published an article on eCash 2.0.

The key features of the solution are cyber resiliency, including that of quantum computers, scalability, and privacy. The two authors wrote another article last year, which shares many of the same features and we explored further.

Privacy and anonymity are the most challenging demands of a CBDC. eCash is capable of anonymous payments. However, to receive the cash, the consumer must go through a KYC process with their merchant bank. The clever feature is that although the commercial bank and central banks authorize you to receive the CBDC, they cannot identify the coins. Comparing it to a bank note, you know the serial numbers of your notes, but banks don’t.

This is a solid solution to transaction privacy and anonymity issues. However, today anyone can acquire physical cash from another person. They do not need a permit from the bank or the central bank. Like most CBDCs, if the government is not so benevolent, the central bank could prevent a consumer from accessing eCash 2 digital money.

Blockchain is not at the core of the solution, which is one of the reasons the solution is so scalable. However, it is possible to optionally use CBDC with public blockchains and thus also with smart contracts.

One of the challenges with the software-based solution is that transactions are verified online by the merchant, the merchant’s bank, and the central bank. Therefore, there is a need for an offline solution. Chaum plans to publish an article about an offline proposal that combines a smartphone and a card.

Meanwhile, the SNB is also participating in the Mariana Project, which will explore automated market makers for forex transactions in cross-border CBDC payments.