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On June 24th, the European Central Bank (ECB) released its first progress report on developing a Central Bank Digital Currency (CBDC), the digital euro. The report focuses on the crucial aspects of the digital euro, such as privacy protection, design, and implementation. The ECB has assured that features such as pseudonymisation, hashing functions, and encryption will be implemented to prevent the tracking of each transaction.
The ECB’s report also highlighted a user-friendly feature of the Central Bank Digital Currency, the development of an offline version. This innovation would enable cash-like transactions without the need for intermediaries. Users can conveniently settle payments directly via payment gateways on smartphone applications and specially designed smart cards, making the digital euro as accessible as offline or traditional cash transactions. During online connectivity, the smart cards may be powered by batteries or use bridging relays to sync with CBDC blockchain transactions.
The offline solution, a testament to the ECB’s commitment to privacy protection, is one of many measures in place. The report also underscores the importance of implementing stringent anti-money laundering (AML) measures during the wallet’s funding and defunding processes. The ECB’s CBDC framework further ensures that payment service providers will be strictly prohibited from using consumer financial data without explicit consent, providing a solid layer of consumer data protection.
The ECB also established a “Rulebook Development Group” to finalise the technical and regulatory requirements for the Central Bank Digital Currency. After consulting with service providers, infrastructure builders, the general public, and other stakeholders, the group will likely deliver its first draft by the end of 2024.
Despite the ECB’s constant efforts, privacy, and human liberty remain top concerns within the growing crypto network. A 2023 report stated that 73% of users expressed unease with the privacy implications of Central Bank Digital Currency and the government’s potential involvement in controlling consumer behaviour. Critics debate that the risks associated with Central Bank Digital Currency significantly outrank its benefits when stablecoins are considered. This perspective highlights the necessity of CBDC and the broader challenges with CBDC adoption.
Lawmakers and politicians in the United States have strongly opposed the digital euro. Donald Trump, the former president of the US, has vowed to prevent the implementation of Central Bank Digital Currency. In May, the House of Representatives voted to favour the CBDC Anti-Survellience State Act, highlighting the digital euro’s significant threats posed in open societies.
Shashank is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist.
Twitter: @bhardwajshash