Bank of Canada Unveils OpenCBDC 2PC for Digital Dollar

The Bank of Canada has made a significant advancement in the exploration of a digital Canadian dollar, presenting a detailed system design for a retail central bank digital currency (CBDC) in a new research paper. The proposed system, known as OpenCBDC 2PC, was developed in collaboration with the Massachusetts Institute of Technology's Digital Currency Initiative and is designed to facilitate simple, everyday payments with a focus on privacy, speed, and decentralization.

The research paper outlines a system where users can hold digital funds directly, similar to digital cash. This design prioritizes user privacy by separating personal identity from transaction data, allowing non-registered users to hold funds in self-custodied wallets and transact without sharing their identity with a bank or payment processor. For registered users, the central bank would not have access to identifying information or transaction histories, enhancing privacy further through the use of cryptographic techniques such as zero-knowledge proofs to obscure transaction amounts from the core infrastructure.

The proposed system uses "unspent transaction outputs" (UTXOs), a structure commonly associated with Bitcoin, to process transactions in two steps: updating a core ledger and transferring funds from one user’s wallet to another. This approach supports real-time settlement and offers a higher degree of privacy from both banks and government institutions.

Despite the detailed technical solution presented in the report, several challenges remain. Integrating the proposed architecture with existing retail payment infrastructure could require substantial technical upgrades, particularly in the way point-of-sale terminals handle digital cash-like transfers. Additionally, while the system is scalable in theory, performance dips during audits and system recovery operations need further engineering work to meet production-grade standards.

The paper emphasizes that this research does not constitute a commitment to launch a CBDC. However, it provides a concrete technical foundation for what such a system could look like, balancing user privacy, institutional control, and operational resilience. The timing of the report is notable, as the new prime minister has expressed support for CBDCs, stating in his 2021 book that "The most likely future of money is a central bank stablecoin, known as a central bank digital currency or CBDC.”