Privacy-enhancing technologies for digital payments: mapping the landscape

Raphael Auer, Rainer Böhme, Jeremy Clark and Didem Demirag

No 1242, BIS Working Papers from Bank for International Settlements

Abstract: How can technology enhance privacy in digital payment systems? This paper presents a systematic evaluation of the interests of privacy-conscious users, commercial data holders, and law enforcement. We classify privacy-enhancing designs along the dimensions of privacy versus auditability, as well as soft institution-based versus hard technology-based solutions. We map existing technologies into this taxonomy and assess them. Sophisticated techniques allow having both hard privacy and limited transparency by employing hard-coded rules that dictate which data remains inaccessible. On balance, there is promise in novel concepts like modern zero-knowledge-proofs, but current technologies also suffer from limitations in terms of security and computational capacity. More technological development is needed in this area. Additionally, efforts could focus on technological development that augments such hard privacy with technologically-enforced access control and systems minimizing the amount of data that is being stored, render abuse transparent and make data holders accountable.

Keywords: privacy; privacy-enhancing technology; payments; BigTech; fintech; regulation; smart contracts; zero-knowledge proofs; applied cryptography; digital money; digital currency; stablecoins (search for similar items in EconPapers)
JEL-codes: E42 G23 G28 O32 (search for similar items in EconPapers)
Date: 2025-01
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