European Central Bank (ECB) has completed the development of prototypes for a digital euro. The ECB is now gearing up to make a decision later this year on whether to proceed with the creation of the European Union’s fiat currency in a new digital format.
ECB Finalizes Digital Euro Prototypes as Development Decision Looms
According to reports released on Friday, the European Central Bank (ECB) has completed the development of prototypes for a digital euro. As the ECB considers whether to proceed with the development of the European Union’s fiat currency in a new format, it acknowledges the potential to enhance innovation through a central bank digital currency (CBDC).
However, the ECB seems to express caution regarding the utilization of Web3-style distributed ledger technology and smart contracts.
This exercise shows that it is possible to smoothly integrate the digital euro design choices into the existing payment landscape while leaving ample scope for innovative features and technologies
ECB Executive Board member Fabio Panetta
Also added:
Will serve as input for both the functional and technical design of a digital euro.
Although the digital euro was initially proposed as a potential response to Facebook’s currency, initially known as Libra but later renamed Diem and ultimately abandoned, the ECB’s prototypes have faced controversy due to the participation of another major U.S. technology company, Amazon.
As EU lawmakers voiced their concerns and demanded a change in direction regarding the plans, Panetta seemed inclined to downplay the lasting impact of Amazon’s involvement. He referred to the prototypes as a “lab experiment” that should be “discarded and not pursued further.”
Regarding the back-end of the prototype, which was developed by the central bank itself, the European Central Bank (ECB) opted not to utilize distributed ledger technology and instead favored a centralized model based on unspent transaction outputs (UTXO), commonly employed in cryptocurrency transactions.
The UTXO system, as described in the ECB report, offers speedy and efficient validation of transactions. It supports various payment types while safeguarding privacy. Additionally, the UTXO system enables conditional payments to be executed without relying on smart contracts, which are automated software applications widely utilized in decentralized finance.
In June, the European Commission is set to publish a bill that addresses digital euro privacy protections and other significant aspects. However, lawmakers have expressed doubts about the advantages of a central bank digital currency (CBDC), especially if it does not allow for innovations like programmable money, which would grant users control over subsequent fund usage.
The European Union is among numerous jurisdictions worldwide currently deliberating the implementation of a CBDC, a move also being considered by neighboring institutions like the Bank of England.
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