Offline payment functionality is technically feasible for a potential digital pound, but various trade-offs make it a challenging endeavor, according to recent research from the Bank of England.
As the central bank continues its multi-year preparatory work on the digital pound, it has engaged with firms such as Thales, Secretarium, Idemia Secure Transactions, Quali-Sign, and Consult Hyperion to evaluate the viability of offline capabilities.
Offline payments are transactions made without access to the central bank’s digital currency network, often due to a lack of internet connectivity. This functionality offers potential benefits, such as increased resilience during outages and improved financial inclusion.
The bank’s findings indicate that while implementing offline payment functionality for a digital pound could be technically achievable, there are significant trade-offs. Key challenges include enhancing user experience while also preventing issues such as double spending and counterfeiting.
The reliance on secure elements for offline transactions presents a risk; if these elements are compromised, the possibility of double spending and counterfeiting increases. In traditional secure payment systems, a secure element is paired with real-time online authentication. Specifically for offline payments, the reconciliation process occurs only after the transaction, which can lead to losses if an issue arises during that delay.
The research explored various solutions that could achieve final and irrevocable payments from a technological standpoint, successfully facilitating the transfer of funds with immediate confirmation, allowing payees to access their funds without needing to reconnect to the network.
However, while the focus of the research was on technology, the Bank of England emphasizes the importance of considering additional factors, including policy, operational, legal, and commercial aspects, should a decision be made to implement a digital pound with offline capabilities.