Digital Dollar Design sm

1. Blockchain Platform : Hyperledger Fabric

• Why: A permissioned blockchain designed for enterprise use, offering scalability, privacy, and control. Unlike public blockchains (e.g., Ethereum), it restricts access to authorized entities, aligning with the Fed’s centralized model. Corda is a strong alternative but is more specialized for financial contracts.

2. Consensus Mechanism: Byzantine Fault Tolerance (BFT)

• Why: BFT ensures fast, secure consensus in a permissioned network with known participants (e.g., banks, Fed). It’s efficient and avoids the energy waste of Proof of Work or the complexity of Proof of Stake.

3. Token Standard : Custom Standard

   - Why : A custom standard built for Hyperledger Fabric ensures compatibility and control, avoiding reliance on public blockchain standards like ERC-20, which are unsuitable for a CBDC.

4. Smart Contracts: Limited Use with Chaincode

   - Why : Chaincode (Hyperledger’s smart contract framework) can automate compliance checks or transaction rules without introducing vulnerabilities. Extensive smart contract use risks complexity, so limit to essential functions.

5. Privacy Features : Zero-Knowledge Proofs (ZKPs)

• Why: ZKPs allow transaction validation without exposing sensitive data, balancing user privacy with regulatory oversight. Simpler than Homomorphic Encryption and more practical than Secure Multi-Party Computation for high-volume transactions.

6. Regulatory Compliance: AML/KYC and Transaction Monitoring

• Why: Embedded AML/KYC protocols and real-time transaction monitoring ensure compliance with U.S. financial laws, preventing fraud and money laundering. Collaboration with agencies like FinCEN is critical.

Federal Reserve and Treasury Controls

1. Governance Model : Centralized Governance

• Why: Centralized control ensures the Fed and Treasury retain authority over issuance, monetary policy, and oversight, unlike decentralized models like DAOs.

2. Access Controls: Role-Based Access Control (RBAC)

• Why : RBAC assigns permissions based on roles (e.g., banks, users, regulators), simplifying management in a permissioned system. More practical than multi-signature wallets or Attribute-Based Access Control.
  

3. Transaction Limits: Tiered Limits

• Why: Daily caps (e.g., $10,000 for individuals, higher for verified businesses/banks) prevent illicit activity while supporting legitimate use. Limits should be data-driven, set with regulatory input.

Additional Notes

• Interoperability : The digital dollar should connect with systems like SWIFT or ACH for adoption. Hyperledger Fabric’s modular design supports this.
• Scalability : Fabric can handle millions of transactions daily, critical for a national currency.
• Public Trust : Emphasizing ZKPs and clear compliance measures can address privacy concerns and build confidence.