Zero-Knowledge Proof (ZKP) Authentication for Offline CBDC Payment System Using IoT Devices

TL;DR

This paper proposes a secure, privacy-preserving offline CBDC payment system leveraging IoT devices, zero-knowledge proofs, and secure hardware to enable seamless, offline digital transactions while maintaining regulatory compliance.

Contribution

It introduces a novel offline CBDC model using lightweight zero-knowledge proofs and secure elements to address resource constraints of IoT devices and enhance privacy and security.

Findings

The model enables secure offline transactions on resource-constrained IoT devices.

It maintains user privacy through zero-knowledge proof cryptography.

The system supports seamless synchronization with online networks.

Abstract

Central Bank Digital Currency (CBDCs) are becoming a new digital financial tool aimed at financial inclusion, increased monetary stability, and improved efficiency of payment systems, as they are issued by central banks. One of the most important aspects is that the CBDC must offer secure offline payment methods to users, allowing them to retain cash-like access without violating Anti-Money Laundering and Counter-terrorism Financing (AML/CFT) rules. The offline CBDC ecosystems will provide financial inclusion, empower underserved communities, and ensure equitable access to digital payments, even in connectivity-poor remote locations. With the rapid growth of Internet of Things (IoT) devices in our everyday lives, they are capable of performing secure digital transactions. Integrating offline CBDC payment with IoT devices enables seamless, automated payment without internet connectivity. However, IoT devices face special challenges due to their resource-constrained nature. This makes it difficult to include features such as double-spending prevention, privacy preservation, low-computation operation, and digital identity management. The work proposes a privacy-preserving offline CBDC model with integrated secure elements (SEs), zero-knowledge proofs (ZKPs), and intermittent synchronisation to conduct offline payments on IoT hardware. The proposed model is based on recent improvements in offline CBDC prototypes, regulations and cryptographic design choices such as hybrid architecture that involves using combination of online and offline payment in IoT devices using secure hardware with lightweight zero-knowledge proof cryptographic algorithm.