Smart Banknotes and Cryptobanknotes: Hybrid Banknotes for Central Bank Digital Currencies and Cryptocurrency Payments, a paper by Dr. Franklin Noll and bank note consultant Andrei Lipkin for the Sept. 16 7th Joint Bank of Canada and Payments Canada Symposium, discusses hybrid bank notes. These are defined as traditional bank notes with the added ability to communicate with an electronic network.

Last week’s column focused on smart bank notes. This week’s article describes cryptonotes, the first of two types of cryptonotes. Next week the subject will be cryptobills.

In 2017, Lipkin, a bank note designer, began creating models for hybrid bank notes that he called “cryptobanknotes.” The notes would be made by existing security printers, with existing equipment and techniques. The first ones used QR codes and private keys protected by a tamper-evident device and other layers of security and authentication. He eschewed the use of radio-frequency identification (RFID) chips, because they could be hacked.

Specialized software would be needed to make the notes operate. It would authenticate the cryptobanknote and “simultaneously facilitate the execution of an e-payment of a banknote to any user and cancel the address of an e-wallet” corresponding to the note.

A cryptonote is a hybrid bank note with public and private keys to access a cryptocurrency account. These notes can pass hand-to-hand until a user wants to transfer the value to an electronic account. This will permanently “burn” or invalidate the note. In other words, a cryptonote is for single use, for the electronic transfer of its value, but until then not different from a regular note.

Its design would have to be modified. Even though it would be of bank note paper or polymer, use intaglio and offset printing, and bear denominators and security features like existing notes, it would require a QR code and a location for a removable foil or other concealing, tamper-evident device.

A £10 note, for instance, would have all the attributes it now has, but the silver foil patch with the crown at the top left would be removable. Underneath it would be the private key in QR code form. The hologram, in this case the “Ten” at bottom left, would be replaced with a visible QR code that would be the public key. The authors explain, “As long as the foil patch remained intact, everyone would know that this £10 contains its value because the foil patch is intact, evidence that no one has accessed the private key necessary to transfer its value electronically.”

To make a transaction, the user scratches off the foil patch to reveal the private key. Then, using a phone or point of sale device, the user scans the QR codes for the public and private keys, accessing the corresponding wallet. The £10 value can then be transferred, and with the foil patch and the value both removed, the cryptonote is no longer usable. And, because of the physical damage to the note, it cannot be reused. The missing foil patch also makes it apparent to everyone, including the visually impaired, that the note no longer has value.

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