KAIME: Central Bank Digital Currency with Realistic and Modular Privacy

Abstract

Recently, with the increasing interest in Central Bank Digital Currency (CBDC), many countries have been working on researching and developing digital currency. The most important reasons for this interest are that CBDC eliminates the disadvantages of traditional currencies and provides a safer, faster, and more efficient system. These benefits also come with challenges, such as safeguarding individuals’ privacy and ensuring regulatory mechanisms. While most research address the privacy conflict between users and regulatory agencies, they miss an essential detail. Important parts of a financial system are banks and financial institutions. Some studies ignore the need for privacy and include these institutions in the CBDC system, no system currently offers a solution to the privacy conflict between banks, financial institutions, and users. In this study, while we offer a solution to the privacy conflict between the user and the regulatory agencies, we also provide a solution to the privacy conflict between the user and the banks. Our solution, KAIME (the name given to the first banknote issued by the Ottoman Empire) alsa has a modular structure. In the transaction, the sender and receiver can be hidden if desired. Compared to previous related research, security analysis and implementation of KAIME is substantially simpler because simple and well-known cryptographic methods are used. Additionally, the zero-knowledge proofs employed can function without the assistance of a trusted third party.