Central Bank Digital Currency – the offline challenge

One of the great benefits of cash is that it can be used anywhere and anytime. It works offline. CBDCs, being the digital equivalent of cash, should do the same: It should be possible to pay when in an area with no connectivity or during a major network outage and this calls for offline payments.

Offline CBDCs may also be more efficient and sufficient for low risk, small value payments such as paying a babysitter.

But there are also strong societal arguments for offline CBDC. Digital cash should work for everyone. To open up access for all citizens, including small children, CBDCs should not necessitate having an expensive smart phone, they should be available in cheaper, less featured devices, such as smart cards. These cheaper devices may not have remote connectivity and may need to operate offline.

Finally, people may find offline payments more privacy preserving and, in this respect, closer to the use of cash. Confidence in the CBDC system will be a key success factor and offline payments may help build this trust.

The Bank for International Settlement have released in 2023 a handbook for offline payments with CBDC which further describes the rationale behind the necessity to support offline CBDCs.

The PoC comprises the following elements:

• Smart cards and smartphones. The solution supports multiple transact types: card to phone, phone to card or phone to phone.
   
• A Digital Currency Provider (DCP) server. The DCP server manages loading (or unloading) digital currency into (from) the device and handling online transactions between devices. The DCP server interfaces with the CBDC core ledger via the Core Ledger Gateway and will typically be operated by the Central Bank or an accredited entity.
• A Monitoring and Detection System. This component, based on Secretarium’s confidential computing platform, stores and monitors the history of transactions that took place offline between devices. It provides key econometric indicators and, most importantly, detects issues such a loss of digital currencies or the fraudulent creation of digital currencies.
   
• A directory of Secure Element identifiers.

Key design elements in the PoC include:

• The use of tokens. The system uses UTXO cryptocurrency techniques by chaining offline payments. When paying offline, a new token is computed in the payer device using funds from one or several token(s) previously stored in this device (funding tokens). A similar UTXO token, for the remaining/unspent amount, is stored in the payer device.
   
• Successful storage for credits and debits. Storage of the remaining amount token in the payer device causes the payer device to be debited – and the payee device to be credited. This transfer is final and irrevocable. There is no need for back-end settlement.
   
• No more offline payments after the limit is reached. After this point, the device will have to perform an online transaction during which the complete token history is uploaded to the DCP server, erased from the device memory and replaced in the device by a single small new token of same value. This re-origination process is called a renewal.
   
• Token histories are uploaded to the Monitoring and Detection System. This privacy-preserving system is used for IT and econometric monitoring purposes. It also detects fraud (double spends or fake funding tokens) and can recover lost funds due to offline transaction interruptions.

Offline CBDC payments evaluation: Thales consultancy services

Offline CBDC solutions can be complex and challenging to assess. For this reason, Thales has created a dedicated service to help central banks evaluate their processes and measure the effectiveness of the Thales’ offline CBDC Proof Of Concept.

Our consultancy service comprises:

• Workshops to review various aspects of offline payments: requirements for devices, usability and deployment considerations, integration with the core ledger.
   
• Training on the details of the Thales solution – how offline payments are made, how offline payment histories are built, how to avoid double spends and fake tokens, how to detect lost funds, how to build privacy into the system.
   
•  Technical integration of the POC with a central bank’s core ledger, using the existing APIs.
   
• Supply of POC components and demonstration.
   
• Support for the evaluation of the POC by the customer.

References for Thales’ offline CBDC POC

Bank of England

The Thales POC was chosen by the Bank of England for its evaluation of offline CBDC payments. In a four-month project, Thales delivered:

• Workshops on the different aspects of the offline CBDC system.
• Integration with a core ledger leveraging the Rosalind APIs jointly defined by the Bank of England and the Bank for International Settlement.
• Provision of cards, phones and servers to test the POC.
• A 50-page report on the project.

Thales is now helping the bank’s CBDC Technology Forum to progress the design phase of the digital Pound.

Reserve Bank of Australia (RBA)

RBA chose Thales as one of the partners for its pilot in two Australian universities (RMIT and Southern Cross). Students used smart cards to make contactless payments with digital Australian Dollars (eAUD) to merchants with CBDC-enabled smart phones. The eAUDs were minted by RBA on a core ledger and distributed to ANZ. 

Bank for International Settlement (BIS)

Thales collaborated with BIS on the banks’ landmark Rosalind and Polaris API projects. We used the APIs to load and unload offline-capable devices with funds coming from a user wallet on the core ledger. 

We participated in a deep dive workshop with BIS. Our contribution can be seen in the handbook for offline payments with CBDC as well as in the High-level design guide for offline payments published by BIS.

To find out more about Thales’ assistance service for offline CBDC, please fill in the contact form here below.