PEReDi: Privacy-Enhanced, Regulated and Distributed Central Bank Digital Currencies

Central Bank Digital Currencies (CBDCs) aspire to offer a digital replacement for physical cash and, as such, must address two fundamental yet conflicting requirements. On the one hand, they should be private to prevent the emergence of a financial "panopticon." On the other hand, they must be regulation-friendly, facilitating threshold-limiting, tracing, and counterparty auditing functionalities necessary for compliance with regulations such as Know Your Customer (KYC), Anti-Money Laundering (AML), and Combating the Financing of Terrorism (CFT), as well as financial stability considerations. In this work, we propose PEReDi, a new asynchronous model for CBDCs and present an efficient construction that, for the first time, simultaneously addresses these challenges in full. Moreover, recognizing the necessity of avoiding a single point of failure, our construction is distributed to ensure that all its properties remain intact even when a bounded number of entities are corrupted by an adversary. Achieving all the above properties efficiently is technically involved; among others, our construction employs suitable cryptographic tools to thwart man-in-the-middle attacks, introduces a novel traceability mechanism with significant performance gains over previously known techniques, and, perhaps surprisingly, shows how to obviate Byzantine agreement or broadcast from the optimistic execution path of a payment, something that results in an essentially optimal communication pattern and minimal communication overhead. We demonstrate the efficiency of our payment system by presenting detailed computational and communication cost analyses. Beyond "simple" payments, we also discuss how our scheme can support one-off large transfers while complying with Know Your Transaction (KYT) disclosure requirements. Our CBDC concept is expressed and realized within the Universal Composition (UC) framework, providing a modular and secure way for integration into a broader financial ecosystem.