Those concerns are as old as digital money. In 1994, my WIRED colleague Steven Levy profiled David Chaum, a cryptographer and inventor of a digital form of money called e-cash. His idea was that, instead of papers and coins, people would carry around digital tokens stored in dedicated devices that might look like a debit card or a key fob, or they could send them by email. (This was well before smartphones.) Chaum’s primary concern was how to keep those transactions secure and private using cryptographic controls. But at the time, a digital dollar issued by the US government wasn’t in the cards. “When I called a spokesperson for the Federal Reserve to ask about electronic cash, he laughed at me,” Levy wrote at the time. “It was as if I were inquiring about exchange rates with UFOs.”

That was before payments apps like Paypal, before Bitcoin, and before Facebook proposed Libra, now called Diem, which promises a form of private currency designed to remain within the walls of its vast digital fortress. It was before, in other words, central banks had much competition. In China, for example, private payment systems such as Alipay and WeChat Pay are near-ubiquitous. A government-issued digital yuan could allow competitors, such as traditional banks, to muscle their way into payments and would also potentially give the Chinese government more visibility into the nation’s economy.

Another impact of that competition is the dwindling use of physical cash. In Sweden, for example, officials view the e-krona as a way to ensure that money remains accessible to the public even in a world where physical cash is hard to come by. Otherwise, there might come a time when buying groceries, saving for retirement, or receiving a welfare check would depend on the strength of private financial networks. Even as it fades from view, public money also offers a kind of backstop in dire times. During the pandemic, fewer people are using cash, but the amount in circulation has actually increased as people stock up from ATMs. Cash is a safe haven—risk-free, so long as you pick a good hiding spot.

But would a digital currency be a replacement for cash? In a paper published last month titled “On the Possibility of a Cash-Like CBDC,” researchers at Sweden’s Riksbank argued that, no, it wasn’t really possible. The reason: privacy. Regardless of how a digital currency is designed, they wrote, someone would have to keep track of transactions to prevent what’s known as the double-spend problem—a digital equivalent of counterfeiting. In other words, digital transactions need to be tracked using some kind of ledger. And with that, it would be impossible to ensure absolute privacy, even with efforts to conceal details of transactions or the identities of the parties involved. With bits and bytes, there’s always the potential for a backdoor or a leak.

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The WIRED Guide to Bitcoin

The cryptocurrency represents amazing technological advances. Bitcoin has a way to go before it’s a a true replacement for, or even adjunct to, the global financial system.

In theory, it would be possible for people to transact without leaving a trace, using forms of secure hardware, on which people could load their digital dollars and transact without connecting back to any centralized system. But current forms of secure hardware aren’t fault-proof and raise security concerns, explains Neha Narula, director of the Digital Currency Initiative at MIT, whose research team is working with the Federal Reserve in Boston to develop digital dollar prototypes. Privacy should be a top priority for any payment system, but setting sights on perfection can set up false expectations. “We’re approaching it as digital cash. But that doesn’t mean we’re trying to get beyond cash or replace cash,” she says.

It’s possible to get very good privacy for digital payments, says Ari Juels, a cryptographer at Cornell University who has studied digital currency designs for central banks. But it’s unclear how much privacy governments will permit and how much privacy will compromise efficiency and security. In a recent paper, Juels and colleagues evaluated the potential of privacy-preserving techniques such as zero-knowledge proofs, used in cryptocurrencies like zCash, for wider public payments. Scaling those methods will be difficult, and there’s no guarantee that they can’t be gamed or hacked—perhaps unwittingly to users. “I am not too optimistic about technology alone solving this problem,” Juels says. He thinks the most robust protections will likely come from laws that prevent the government from unfettered access to transactions made using private banks or credit cards.