The Bank of England is considering zero-knowledge proofs (ZK-proofs) and other privacy-enhancing technologies to strengthen user privacy in a future digital pound. In a recently published report, “Enhancing the Privacy of a Digital Pound,” the central bank highlighted various privacy-preserving tools—such as pseudonymization, ZK-proofs, and secure multiparty computing—as potentially transformative for protecting user data.
By integrating these technologies, the Bank of England aims to ensure that a digital pound could be at least as private as existing forms of digital payments, and possibly more so. While these cutting-edge approaches promise enhanced privacy, the bank acknowledges certain trade-offs, particularly around balancing regulatory compliance and the need to prevent financial crime.
The bank’s interest in zero-knowledge proofs aligns with ongoing research in blockchain ecosystems like Ethereum, Zcash, and Polygon, where similar methods have been used to safeguard user privacy and support secure transactions. The Bank of England also reaffirmed that neither it nor the government would have direct access to personal user data within a digital pound framework.
Despite the promising outlook, the bank emphasizes that more research is needed to fully address regulatory requirements and the technical challenges that come with implementing privacy-enhancing technologies. Since initiating its digital pound exploration in 2020, the Bank of England has been methodical, conducting consultations and collaborations—such as with MIT’s Digital Currency Initiative—to refine its approach. A final decision on launching a digital pound remains pending.
