Offline payment functionality is technically feasible for a future digital pound but there are trade-offs that make it challenging, according to new Bank of England research.
As it continues the design phase of its multi-year preparatory work on a potential digital pound, the central bank has brought in Thales, Secretarium, Idemia Secure Transactions, Quali-Sign and Consult Hyperion to assess the feasibility of offline functionality.
Offline payments occur while neither payer nor payee has access to the central bank digital currency network, usually due to the lack of an internet connection. The potential benefits include resilience in the face of outages and financial inclusion.
The bank has found that "while it might be technically feasible to implement an offline payment functionality for a digital pound, there are trade-offs, particularly around user experience and preventing double spending and counterfeiting, that make implementing it challenging".
The heavy reliance on secure elements for offline mean that if they were breached, double spending and counterfeiting might occur. While secure elements are commonly used in payments, they are, in most cases, paired with immediate online authentication. In contrast, the online layer in an offline payment - online reconciliation - occurs only after the transaction has taken place and losses have already been incurred.
The various options tested all achieved final and irrevocable payments from a technology perspective by transferring funds from the payer to the payee with immediate confirmation and settlement, enabling the payee to spend those funds immediately without having to reconnect to the network.
However, while the research was focused purely on technology, the bank stresses that other factors, including policy, operational, legal, and commercial considerations, would all need to be factored in if a decision is made to roll out a digital pound with offline capability.