COTI, a Layer 2 on the Ethereum (ETH) blockchain, and 14 other Fintech companies have been invited to develop use cases for the Bank of Isreal’s upcoming Digital Shekel Challenge, as per the updates shared with Finbold on July 24.
Backed by big names such as PayPal Israel and Fireblocks, the project aims to explore the potential of a central bank digital currency (CBDC).
The Digital Shekel Challenge
The Digital Shekel Challenge kicks off in August, with participating teams diving into various aspects of CBDC implementation.
By late October, each team will present its proposals to the Bank of Israel, potentially setting the stage for a possible move towards a national digital currency.
While the Bank of Israel’s official decision remains to be disclosed, the Digital Shekel Challenge is a significant step toward making CBDC a reality.
Addressing blockchain privacy concerns
CBDC discussions usually involve assessing the risks of exposing sensitive financial data or revealing personal details.
COTI focuses on the potential of blockchain technology to address critical issues, especially cybersecurity concerns.
The platform’s approach involves using garbled circuits technology from its Layer 2 solutions to enhance privacy.
Shahaf Bar-Geffen, COTI CEO, highlighted the importance of robust privacy protection in making CBDC reach its full potential, stating:
“For CBDCs to realize their full potential, robust privacy protection is paramount. Leveraging the privacy provided by COTI’s garbled circuits technology, we’re confident we can engineer a solution that will allow the concept of a digital shekel to be transformed into a working reality.”
The future of central bank digital currencies
Since physical cash is becoming obsolete, CBDCs present a compelling idea, promising easier access to financial services for the unbanked and underbanked, particularly in regions lacking robust banking infrastructure.
However, implementing CBDCs comes with a lot of challenges, including user identity verification and privacy insurance.
Blockchain offers a potential solution, but public networks alone may not suffice, so a successful CBDC implementation will likely blend blockchain technology with traditional Fintech systems.
By the end of the Digital Shekel Challenge, the Bank of Israel will gain more insight into how various components will fit together.
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