A Digital Currency Architecture for Privacy and Owner-Custodianship

We propose an approach to digital currency that would allow people without banking relationships to transact electronically and privately, including both internet purchases and point-of-sale purchases that are required to be cashless. Our proposal introduces a government-backed, privately-operated digital currency infrastructure to ensure that every transaction is registered by a bank or money services business, and it relies upon non-custodial wallets backed by privacy-enhancing technology such as zero-knowledge proofs to ensure that transaction counterparties are not revealed. We also propose an approach to digital currency that would allow for more efficient and transparent clearing, settlement, and management of systemic risk. We argue that our system can preserve the salient features of cash, including privacy, owner-custodianship, fungibility, and accessibility, while also preserving fractional reserve banking and the existing two-tiered banking system. We also show that it is possible to introduce regulation of digital currency transactions involving non-custodial wallets while still allowing non-custodial wallets that protect the privacy of end-users.