The Crypto Godfather Wants to Build a Privacy-Focused CBDC: Here’s How

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When it comes to the crypto part of cryptocurrencies, David Chaums’ work predates the crypto ecosystem. His efforts as a renowned cryptographer date back to 1989, long before Bitcoin (BTC) was a thing.

Chaum developed the protocols that serve as the basis for DigiCash, the world’s first cryptographically-secured digital currency. As CEO of privacy-focused network developer Elixxir, David Chaum is working with the Swiss central bank to develop a central bank digital currency (CBDC) that could also appeal to the crypto ecosystem due to its privacy features.

Dubbed eCash 2.0, the new project aims to develop a digital currency that would be inalienably private and quantum resistant to counterfeiting. Since the technical details require a deep understanding of crypto, Cointelegraph spoke with Chaum during Istanbul Blockchain Week to better understand the mechanics of this crypto-enabled CBDC project.

A censorship-resistant CBDC

It all started when Swiss National Bank board member Thomas Moser invited David Chaum to Zurich for a conference and told him he wanted to make eCash great again, asking for his help with a new project.

[Moser] couldn’t figure out why people weren’t using eCash for CBDC, Chaum started to explain. Big banks have too much to consider in terms of reliability and future preparedness. Thus, they are not keen on investing in something that is not quantum resistant.

As part of the project, internally called Project Tourbillon, Chaum has developed a cryptographic protocol that proves that a CBDC can protect privacy, be censorship and quantum resistant, scalable and even compatible with decentralized finance blockchains. (Challenge). One of its goals was to make the total number of coins available transparent.

At first, the project team tried using the old eCash, but quickly realized that it was not what they had in mind. That is why the BIS Innovation Hub, the Swiss National Bank and xx Network have based the joint project on eCash 2.0. Chaum noted that user-controlled privacy, the best feature of the original eCash, has been carried over to this new project.

According to the official announcement, the Tourbillon project aims to reconcile the trade-offs between cyber-resilience, scalability and privacy by combining technologies such as blind signatures and mixed networks with the groundwork prepared by David Chaum and Thomas Moser.

Chaum pointed out that privacy is key for banks, along with blockchain scalability and compatibility, as the public is very concerned about this. He noted the public call for comments from European central banks on the CBDC, pointing out that 40% of the comments concerned privacy.

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You can withdraw $500 every day with your ATM card, but you can’t walk into a bank and withdraw $1,000,000 in cash, it’s people’s privacy, Chaum explained. The same should be true in electronic payment systems, he noted. These systems should make it very difficult for someone to gather enough of it and use it for evil purposes, like hiring a hitman without being noticed.

Inalienable keys: a new approach to privacy

To meet the confidentiality requirements of a digital currency, Chaum devised a confidentiality system in which it is possible to prove that a user knows his passphrase without revealing it. It’s a relatively new approach that Chaum called inalienable.

The name, inalienable key, is derived from its key capacity: this new type of private key cannot be given or taken away by nature. The key itself is a phrase or phrase that can be easily remembered by the owner but impossible to guess by third parties.

In the context of central bank digital currencies, when a user wants to join the CBDC system as a user, they can go to a bank office to prove they know their inalienable key by confirming specific locations of random letters in the sentence.

When performed in a privacy-focused physical environment, as Chaum illustrates in the image below, it helps users prove they know the key without actually revealing the private key.

Once users have confirmed their identities, they can establish a whole family of related nicknames that cannot be seen together, although they are all tied to the users passphrase.

In the inalienable system, the user does not have to go through the physical confirmation stage after the first time. They can send their confirmation electronically and also create pseudonyms for any other specific situation, explains Chaum. He compared pseudonyms to notebooks with specific signatures or credentials. He thinks the usability of inalienable keys goes beyond finance.

They can represent that a user has paid their taxes this year. Or they graduated with great distinction, Chaum said, adding: If they are asked for proof about any of these, they can use any of these pseudonyms and confirm it without any knowledge.

Quantum resistance can’t wait for quantum computers

Any conversation with the godfather of cryptography, a nickname given to David Chaum for his decades-long contributions to cryptography, would not be complete without discussing quantum resistance. Although not a direct threat to cryptography, quantum computers that can easily crack the Bitcoins SHA-256 cryptographic protocol are expected to arrive within the next decade. Therefore, being prepared against attacks from such devices is a must for all future-proof systems and services.

Chaum indicated that quantum resistance should be on everyone’s agenda. Because the data, even if it cannot be read now, is easily saved. Once quantum computers arrive on the scene without any warning, today’s encrypted data will be much easier to decipher.

His company, Elixxir, focuses on the quantum resistance aspect of cryptocurrencies with xx Network, which uses quantum resistant backup keys to support its xx coins. Chaum claimed that xx Network was able to perform 3,500 quantum-resistant transactions per second in the public test of xx coin.

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But, money isn’t everything; communication matters too. Chaum pointed out that most chat services today use end-to-end encryption as a promotional tag. He added that most modern messengers redirect people to the error to prevent them from noticing that there is no metadata shredding, adding that anyone listening to one of these messengers can see everyone who is speaking. to whom in the world:

We thought, let’s put quantum resistant encryption to protect the content of the message, then announce it and see what happens. And we did, and we got it, and none of the other messengers followed.

Instant messaging services don’t care about their so-called strong end-to-end encryption, Chaum said, because they don’t have it.

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