European Central Bank’s CBDC Borrows Bitcoin’s Pseudo-Anonymity
December 20, 2019
On December 17, the European Central Bank (ECB) published a report that showcased its blockchain technology proof-of-concept. One particular feature the central bank digital chain holds is the ability to issue “anonymity vouchers.”
ECB Report Explores Anonymity in Central Bank Digital Currencies
These days, central banks have dedicated research and development teams focused on building distributed ledger technology (DLT). Many central banks like the People’s Bank of China (PBoC), the U.S. Federal Reserve, and the European Central Bank (ECB) have shown strong interest in blockchain. On Tuesday, the ECB published a new report called “Exploring anonymity in central bank digital currencies” that explains how a “central bank digital currency” (CBDC) could work. The CBDC research is part of a proof-of-concept that aims to contribute to the broader discussion of central bank chains. The concept deploys several features that were created by R3 and Accenture and the ECB calls the network “Eurochain.” The Eurochain report highlights the benefits of the hypothetical network and discusses how anonymity can fit into the logistics.
Eurochain Borrows Bitcoin’s UTXO Design and Users Must Deal With Intermediaries
One interesting point within the 10-page report describes how the ECB plans to enforce AML/CTF limits on the amount that a CBDC user can spend without the AML authority’s involvement. The ECB’s “CBDC has cash-like features” and details that “a novel new concept – ‘anonymity vouchers’ – has been devised.” “The ongoing digitalisation of the economy represents a major challenge for the payments ecosystem, requiring that a balance be struck between allowing a certain degree of privacy in electronic payments and ensuring compliance with regulations aimed at tackling money laundering and the financing of terrorism (AML/CFT regulations),” the report highlights.
After the ECB’s research published, cryptocurrency community members discussed the subject on forums and social media. One critic tweeted that the ECB’s Eurochain CBDC borrows from Bitcoin’s UTXO model. John-Paul further said: “Already it is apparent the chain cannot have ‘anonymity’ as they call it, at best it can only match Bitcoin’s pseudo-anonymity — They even admit this — No surprises here.” John-Paul added:
Users cannot generate their own wallets. They have to apply to ‘intermediaries’ (think retail banks) to gain a new account — Eurochain has the ability to control wallet access and CBDC volume.
Peer-to-Peer, Censorship-Resistant Money Trumps Any Hypothetical CBDC
Since 2015 and the blockchain hype that followed, bitcoiners have taken issue with bank chains. Still, to this day, central banks have been discussing, releasing papers, and even creating CBDCs. In fact, the petro (PTR) is the first CBDC created by the president of Venezuela, but there are plenty of rumors of more CBDCs on the way. However, not every nation state’s central bank is down with the CBDC trend, as a few countries have warned against them. In February, South Korea’s central bank explained that a nation state that adopts a CBDC could suffer from liquidity shortages and cause interest rates to rise. The Bank of Korea’s (BoK) report followed another study that disclosed roughly 70% of the world’s central banks are researching CBDCs.
Even though the paper talks about leveraging privacy-enhancing techniques, most crypto enthusiasts scoffed at the ECB’s paper. BCH supporter @Btcfork created a graphic that shows a visual representation of the ECB’s proof-of-concept CBDC versus Bitcoin Cash. “Not being forced to use intermediaries in Bitcoin Cash means that no one party can block (censor) your transactions,” Btcfork’s read.cash blog post said. “It would take collusion of majority of miners on the network to block them – that is highly unlikely since Bitcoin Cash is a global, open peer to peer network.”
What do you think about the European Central Bank CBDC proof-of-concept Eurochain? What do you think of a CBDC compared to a decentralized public blockchain network like Bitcoin Cash? Let us know what you think about this subject in the comments section below.
Image credits: Shutterstock, ECB, Wiki Commons, Fair Use, ECB December CBDC Report, Pixabay, and @Btcfork.