- The Bank of England tested five technology solutions for offline CBDC functionality, finding technical feasibility but significant challenges.
- Usability issues include separate offline/online balances, storage capacity limitations, and transaction limits.
- Fraud prevention relies primarily on device security, with after-the-fact reconciliation presenting challenges for detecting counterfeits and double spending.
The Bank of England has completed technical trials exploring offline functionality for its potential digital pound as part of its central bank digital currency (CBDC) design phase. According to a recent report, the bank tested solutions from Thales, Secretarium, IDEMIA Secure Transactions, Quali-Sign, and Consult Hyperion, finding them technically capable of delivering final payments while identifying several key challenges.
The trials revealed that while offline CBDC payments are technically feasible, significant hurdles remain in usability and fraud prevention. The bank’s experiments focused solely on technological aspects, setting aside policy considerations to evaluate how effectively current technologies could support offline digital currency transactions.
User Experience Challenges
A primary usability concern identified in the report is that offline and online CBDC balances must be kept separate within digital wallets. This separation could confuse users who might unexpectedly find themselves unable to make payments during network outages if they haven’t previously allocated funds to their offline balance.
The bank also noted hardware limitations affecting transaction capacity. Offline payments typically utilize secure elements in smartphones, specialized SIMs, or smart cards, all of which have restricted storage capacity. This constraint limits the number of transactions possible before reconnecting to the network, with one tested solution showing particularly significant limitations.
Transaction limits, while necessary for security, further complicate the user experience. Time-based restrictions proved especially problematic as smart cards lack built-in clocks, and smartphone times can be manually altered. Alternative approaches like limiting transaction counts remain vulnerable if secure elements are compromised.
Fraud Detection Challenges
The report highlighted that cryptographic keys within device secure elements serve as the primary defense against counterfeiting and double spending. However, additional measures are needed to detect when these protections have been breached.
Offline transactions require subsequent reconciliation with the online ledger once network connectivity is restored. This after-the-fact approach fails to prevent double spending but can help detect it. The bank tested various transaction record-keeping methods, noting that completely anonymous transactions (with no records kept) make fraud detection impossible.
Several privacy-preserving technologies were evaluated to protect personal information while maintaining fraud detection capabilities. Additionally, the trials tested centralized systems for uploading transaction data using confidential computing to enable additional checks, including anti-money laundering measures.
The bank concluded that while technically feasible, significant work remains to address security, performance, and user experience challenges for offline CBDC functionality, particularly regarding double spending detection and managing compromised secure elements.
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