CBDC Security and Convenience: a Major Challenge

Digital currency covers more than Central Bank Digital Currencies (CBDCs), it extends to all the digital solutions from Bitcoin to Diem. Digital currencies store balances in anonymous electronic addresses.

The Bank of Canada Staff Working Paper 2021-6, ‘Eggs in One Basket: Security and Convenience of Digital Currencies’, investigates the trade-off individuals and companies make between safety and convenience when aggregating balances in addresses, digital wallets and banks. The conclusions have implications for the design of CBCDs.

Individuals face the risk of theft of large accounts and the cost of safeguarding lots of small accounts and their passwords.

Banks, wallet providers and payment service providers have different objectives and face different trade-offs, and so their welfare affects are different in line with their structures and interdependencies, particularly around password aggregation programmes.