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Progress on a digital USD brings CBDC standards into focus

Written by: Simon Chantry, Co-Founder & CIO, Bitt

The release of the Federal Reserve’s CBDC paper, and the following release of the Boston Fed
and MIT’s joint CBDC research and development project (Project Hamilton), has confirmed that
the largest monetary authority in the world is examining the feasibility and suitability of a digital
USD. The Fed’s long-awaited paper covers many structural, operational, regulatory, and technical
considerations for the design of a digital USD, while not being overly detailed in any particular
category. With Project Hamilton undoubtedly picking up steam after the release covering Phase 1
of the project, attention may now shift to the more technically detailed results of their
experimentation and research to develop a “core transaction processor that meets the robust
speed, throughput, and fault tolerance requirements of a large retail payment system.”

1 (1 https://www.bostonfed.org/publications/one-time-pubs/project-hamilton-phase-1-executive-summary.aspx)

The evolution of national payments infrastructure is evolving at a quickened pace, and, at Bitt, we are
more excited than ever to be at the forefront.

At the end of last year, the Central Bank of Nigeria contracted Bitt to deploy, maintain, and evolve
the eNaira and to continue their CBDC journey; the first CBDC to be deployed in Africa. The
initiative aims to achieve substantive financial inclusion, and other policy goals, in a country of
over 212,000,000 where only 51% have access to some form of formal financial services. Nigeria,
the economic powerhouse of the African continent, is one of an estimated 91 countries whose
central banks are actively working on the digitization of their currency as a response to the
fast-paced technological advancements in financial infrastructure over the past decade, and the
proliferation of private currencies of various types, now increasingly utilized all over the world.

The US now enters this group of countries pushing forward with their own digital currency. In their
recent publication, ‘Money and Payments: The U.S. In the Age of Digital Transformation’, the Fed
declares: “In our rapidly digitizing economy, proliferation of private digital money could present
risks to both individual users and the financial system as a whole. A U.S. CBDC could mitigate
some of these risks while supporting private sector innovation.”

2 The uncertainty and risks posed by the growth of private digital currencies, including decentralized digital assets like Bitcoin, as
well as enterprise backed currencies like USDC, have central banks moving to assess the value,
benefits, and impact of evolving the underlying technologies of their own currencies. Indeed,
monetary authorities are looking to technology for tools to better achieve their mandate of
regulating the supply of money and maintaining economic stability and growth in a rapidly
evolving digital world. Forward-thinking monetary authorities may also be seeking to support a
more complex, global monetary policy framework that will emerge throughout this period of

With these two recent releases, the US Federal Reserve enters the conversation in a meaningful
way, covering many factors associated with rolling out a digital dollar in the US and beyond. The
Fed also lists a number of common objectives that we, at Bitt, hear regularly from central banks
from all over the world, stating that “a US CBDC should, among other things:
• provide benefits to households, businesses, and the overall economy that exceed any
costs and risks;
• yield such benefits more effectively than alternative methods;
• complement, rather than replace, current forms of money and methods for providing
financial services;
• protect consumer privacy;
• protect against criminal activity; and
• have broad support from key stakeholders.” 3

2 https://www.federalreserve.gov/publications/money-and-payments-discussion-paper.htm

3 https://www.federalreserve.gov/publications/money-and-payments-discussion-paper.htm

An encouraging theme in the paper was the Fed’s commitment to participate in standards setting
efforts for CBDCs, stating “Irrespective of any ultimate conclusion, Federal Reserve staff will
continue to play an active role in developing international standards for CBDCs.” In these early
years of CBDC and stablecoin experimentation and deployment, standards are still maturing
alongside the individual projects themselves. We at Bitt have been working to establish standards
for key elements of CBDC systems for the past 5 years, and have participated in a variety of
existing think tanks and working groups with little to show for it. Perhaps the correct bodies aren’t at
the table for this effort yet; some are looking to the G20 for action. As central banks accelerate
engagements with technologists like Bitt for the purpose of designing, configuring, and deploying
their CBDC, a variety of risks and tradeoffs emerge. Some of the most pressing design issues
pertain to the safeguarding of user information, the protection of user privacy, AML compliance,
accountability of system administrators and other stakeholders, the prevention of unnecessary data
collection, and more. Should interconnected CBDC networks form part of the financial system of the
future, data protection for all who use these systems will be of the utmost importance for the
security of citizens, enterprises, and nations as a whole.

Thankfully, the Fed recognizes the importance of privacy and data protection in mentioning that
“initial analysis suggests that a potential U.S. CBDC, if one were created, would best serve the
needs of the United States by being privacy-protected, intermediated, widely transferable, and
identity-verified.” However, the Fed also points out the challenges faced in balancing identity
verification and user privacy, noting that a US “CBDC would need to strike an appropriate balance
between safeguarding consumer privacy rights and affording the transparency necessary to deter
criminal activity.”

4 The tradeoffs are not yet clearcut, and the stakes are high. While these systems
continue to evolve, Bitt is advancing an open national utility infrastructure that may host one or more
variations of digital currencies, with configurable disclosures and privacy protection throughout the

As it pertains to the development of the next iteration of national currency, technology and
innovation should be considered not just in terms of what is possible, but how it can enable the
values and framework that underlie true individual and collective freedom, elements that have made
the USA the great nation that it is today. As a global company with significant American ties, Bitt
has adopted that spirit and evolved our CBDC solution to meet the needs of central banks of all
shapes and sizes. We also recognize the importance of countries like the US moving into a stage
where extensive testing with a variety of stakeholders – through deep experimentation and
extensive pilot projects – informs their strategy moving forward. Indeed, Phase 2 of Project
Hamilton is pointing in that direction, with research seeking to provide solutions for “critical
questions around high-security issuance, systemwide auditability, programmability, how to balance
privacy with compliance, technical roles for intermediaries, and resilience to denial of service
attacks.” 5

4 https://www.federalreserve.gov/publications/money-and-payments-discussion-paper.htm
5 https://www.bostonfed.org/publications/one-time-pubs/project-hamilton-phase-1-executive-summary.aspx

However, we recognize that having a set of robust standards, set by the world’s most significant
financial institutions and technologists, would not only provide the assurances the financial sector is
seeking in order to be confident in the path forward, but also the end users themselves. Establishing
trust is a major challenge for any new technology product or offering, and CBDCs are no exception.
At a time when trust in institutions is low, providing assurances that end users’ data won’t be used
against them when spending money – and being able to technically prove the same – should be a
high priority for any central bank. The issues of data accessibility, user privacy, and operator
accountability all require clear and concise standards, which are equally important as the
performance related aspects of security, throughput, and scalability. While it is expected that some
countries embarking on CBDC projects are doing so in order to gain augmented surveillance tools,
the Federal Reserve and the US Treasury have an opportunity to define standards that align with
values that have birthed the largest economy the world has ever seen, namely liberty, integrity, and
responsibility, among others.

The process of rolling out a CBDC is a journey, and patience will be required at many steps along
the way to ensure careful consideration of all design, governance, and operational elements. The
decisions being made by central banks and their technology teams for the design of CBDC systems
will have major impacts on the stakeholders who use these currency systems, as well as the
economy, the political system, and society at large. Errors at this stage could result in detrimental
and potentially catastrophic consequences in the future with respect to privacy, basic human rights,
economic stability, and national security. Furthermore, with more people questioning the mechanics
of money, there exists increased pressure to provide transparency with respect to the design
considerations of modern monetary systems, including the policies that will be enacted through said

Project Hamilton’s release last week confirms that the Boston Fed and MIT will leverage the open
source community, and have released their OpenCBDC software on github. By doing so, they
advance the effort to “create a flexible platform for collaboration, data gathering, comparison with
multiple architectures, and other future research.”

6 While it is encouraging to see that open-source software development practices are being used in this effort, we have yet to see the issues
surrounding the safeguarding of user data addressed in full; perhaps the unfiltered meritocracy that
typically emerges from open-source collaboration will call into question these important
considerations. Each user interacting with CBDC — from the central banker to the retail user — will
utilize software tools and applications with functionality that corresponds to that particular user
group’s requirements. All functionality needs to be carefully analyzed and considered in the design of
the entire system to ensure integrity and accountability of each stakeholder group. Similarly, data will
be generated during each stakeholder interaction with CBDC. Where the data resides, who gains
access to this data, and how are stakeholders with privileged access held accountable are all
questions that need to be answered in order to mitigate risks that are proposed by the introduction of these systems.
6 https://www.bostonfed.org/publications/one-time-pubs/project-hamilton-phase-1-executive-summary.aspx

Similarly, in order to achieve the many benefits stated in dozens of research papers over the past few
years – pertaining to interconnected CBDC networks for payment vs payment (PVP) and delivery vs
payment (DVP) use cases – standards are required to ensure seamless integration and
interoperability. The Fed offers the following commentary on the topic: “CBDC has the potential to
streamline cross-border payments by using new technologies, introducing simplified distribution
channels, and creating additional opportunities for cross jurisdictional collaboration and
interoperability. Realizing these potential improvements would require significant international
coordination to address issues such as common standards and infrastructure, the types of
intermediaries that would be able to access any new infrastructure, legal frameworks, preventing illicit
transactions, and the cost and timing of implementation.”
7 We at Bitt are eager to continue our efforts
to establish, test, and collaborate on the implementation of CBDC standards, and are thrilled that the
Fed is stepping up for this very important cause.
The United States has an opportunity to become a global leader in setting CBDC system design and
technology standards that can preserve privacy, enforce accountability, and enable nations to realize
the many benefits of utilizing modern financial technology for low cost and efficient transactions in
central bank money. For this to happen, the US official sector has to invest significantly in dedicated
projects and organizations at places like MIT, and the private sector through public private
partnerships, in order to develop robust standards in practice.
7 https://www.federalreserve.gov/publications/money-and-payments-discussion-paper.htm


Many countries are moving forward at an increased pace, like Nigeria, with respect to the design,
development, and deployment of their digital currencies. As we continue to assist a number of those
nations, we are eager to continue our discussions with American decision-makers from the financial
and public sectors, and collaborate with those accelerating standards within the US and beyond. We
will also continue working jointly with other democracies that will preserve economic integrity and
human rights for all who use CBDC systems. Bitt is optimistic about stakeholder participation in the
Federal Reserve’s process as evidenced by its recent paper, which will certainly push forward the
discussion and begin an important public consultation phase to further inform design considerations
for a digital USD.
In closing, the Fed stated: “A CBDC could potentially serve as a new foundation for the payment
system and a bridge between different payment services, both legacy and new. It could also maintain
the centrality of safe and trusted central bank money in a rapidly digitizing economy.”
8 We at Bitt agree with this proposition and look forward to contributing to the evolution of digital currencies
around the globe. Stay tuned to Bitt.com for more updates regarding our deployments and upcoming

8 https://www.federalreserve.gov/publications/money-and-payments-discussion-paper.htm


About Simon
Simon Chantry is Co-Founder and CIO of Bitt, a financial technology firm that provides digital currency solutions for central
banks and financial institutions worldwide.

About Bitt
Bitt is a global financial technology company that provides digital currency and stablecoin solutions to central banks,
financial institutions, and ecosystem participants worldwide. With a staff of over 60 highly skilled professionals from around
the world, Bitt is at the forefront of financial innovation, with a specialization in central bank digital currencies (CBDC) and
stablecoins. The company’s Digital Currency Management System (DCMS) leverages blockchain-based distributed ledger
technology to introduce the benefits of the most efficient financial ecosystem to date.

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