CBDC Design Needs to Address Risk to Users, Says Bank of Canada

Building an anonymous central bank digital currency (CBDC) presents security risks – not only to the issuer but to the users themselves, says the Bank of Canada.

AccessTimeIconOct 6, 2020 at 1:55 p.m. UTC
Updated Sep 14, 2021 at 10:05 a.m. UTC

Building an anonymous central bank digital currency (CBDC) presents "particular" security risks – not only to the issuer but to the users themselves, according to the Bank of Canada (BoC).

  • In a new analytical note published Monday, the BoC said the users of a central bank token would have a tendency to "economize" on security, as they may not bear the full cost of any losses.
  • The note raised the potential of users to lose the private keys to their addresses, or become victim to hacks or fraud through their own actions or bugs in the code of wallets, exchanges and other services.
  • These issues are generally not due to the protocols behind digital currencies, which the BoC says are normally "extremely secure."
  • If the central bank sets up liability rules for losses similar to those for cash and bank accounts, CBDC users may be incentivized to comply with stricter security standards.
  • Even so, it may be hard to enforce such rules as determining responsibility for losses of digital currencies can be "difficult," according to the note.
  • A solution proposed for further investigation by the BoC would be to limit users to storing their CBDC holdings only at "approved intermediaries."
  • Another challenge to a CBDC issuance raised in the note is that digital currencies are aggregated in anonymous addresses on a large scale, beyond what is possible with cash.
  • This means there would be "trade-offs" between security and convenience that are not a factor in traditional banking, the central bank says.
  • Further, competition between providers of third party solutions and the use of different security protocols brings the risk that they may not interact securely.
  • The central bank therefore proposes that limiting user balances and enforcing security protocols on third-party providers could solve these potential problems.


Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

Learn more about Consensus 2024, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.