On Wednesday, UK-based fintech startup Nuggets released a press release confirming the platform’s partnership with the Bank of England (BoE) to tie potential digital pounds with a secure digital identity. To fight money laundering, cybercrime, and fraud, Nuggets provides a “verified self-sovereign digital identity.”

Although a digital pound is not yet set in stone, Nuggets would bridge the end-users smartphone to the central bank’s money ledger. How would that work exactly?

Nuggets to Work with BoE on Britcoin

As the name of the firm implies, Nuggets are personal data bits. These bits are encrypted using zero-knowledge cryptography, by which two parties can exchange data without knowing the other’s identity. Moreover, as personal data, nuggets are hosted on a blockchain, so they are imbued with record immutability. 

This relieves third parties, such as retail companies, from holding customers’ data. That alone is huge because most large cyber attacks go after companies’ user data silos. Nuggets users can also decide where and when to share their nuggets.

Likewise, Nuggets takes advantage of modern smartphones’ capacity to read biometric data, providing an additional layer of trust.

Having received rewards for these identity management solutions, the Bank of England selected Nuggets as its main partner if a digital pound materializes. In mid-June, the London-based firm participated in Phase 2 TechSprint of Project Rosalind. 

This endeavor was jointly kickstarted by the Bank of England and the Bank for International Settlements (BIS) as a prototyping sandbox for digital wallets to transact with retail CBDC. However, retail central bank digital currency (CBDC) is still too controversial for BoE to launch.

Possible Issues with “Britcoin”

Governing personal privacy via Nuggets, and accessing the central bank’s ledger at its discretion, are two different things. Popularly dubbed ‘Britcoin’, the Bank of England’s CBDC faces inherent obstacles on multiple levels. As a digital expression of the central bank’s ledger in tokenized form, Britcoin could destabilize commercial banks. 

After all, if there is only one bank that ultimately counts, what would stop customers from withholding funds in times of uncertainty? In May, money flight concerns prompted Carolyn Wilkins, BoE’s Financial Policy Committee member, to adopt a cautious approach:

“Before any decision to launch is made, they [governments and central banks] must be confident that they have mitigated financial stability risks.”

Likewise, UK Finance, representing over 300 financial services, noted that Britcoin could introduce more risks for Payment Interface Providers (PIPs). Because PIPs would have to bear the costs of KYC/AML compliance, operational resilience, and customer protections, they would have to recoup these expenditures through fees. 

The organization even suggested that “funding could be provided from the public sector.” Additionally, the proposed Britcoin’s initial limit of £10,000 to £20,000 could be excessive. UK Finance argues for a £3,000 to £5,000 limit instead, which better reflects consumer habits.

On a consumer level, a retail CBDC could be akin to surveillance on steroids. The central bank would have access to detailed spending habits, which could even be directed or cut off via smart contracts under the BoE’s discretion. This is what makes Britcoin so fundamentally different from cryptocurrencies.

So far, the public feedback has been largely negative after Threadneedle Street received over 50,000 responses. This was despite a new delineation having entered the public discourse – private but not anonymous. In other words, provisionally private.

“Under certain circumstances, the authorities, law enforcement, tax … can have access to the records of all of your transactions in your bank accounts.”

Jon Cunliffe, BoE’s deputy governor

Regarding de-banking in the political arena, as with Canadian truck protests, a CBDC would likely streamline it. In a recent viral video, Nigel Farage described such capability as “becoming a non-person.” 

Based on the present CBDC controversy, the launch is not expected until 2025. In the meantime, Jeremy Hunt, Chancellor of the Exchequer, assured the public that “cash is here to stay.”

Since Britcoin is still in consultation, China’s digital yuan (e-CNY) will continue demonstrating its use cases. In geopolitical terms, the digital renminbi has already raised concerns it weakens US leverage over China. The manufacturing superpower could mandate digital payments along its Silk Road initiative.

Do you think electronic money, as offered through electronic payment systems for credit/debit cards, is already sufficiently digital? Let us know in the comments below.

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