Before trying to apply blockchain to anything, think why.
Retail central bank digital currencies, or CBDCs, do not require the use of blockchain technology, according to executives at major European central banks.
Thomas Moser, an alternate member of the governing board at Swiss National Bank, and Deutsche Bundesbank’s Martin Diehl discussed the state of CBDCs at the European Blockchain Convention Virtual 2020 conference on Monday.
During the online panel discussion, both Diehl and Moser seemed to agree that global retail CBDC projects do not need blockchain, citing a number of reasons.
Moser said that the primary use cases for blockchain intend to provide trust when a project has no central party. “Like for instance, Bitcoin. I think it is a very good use case for blockchain,” the exec noted.
However, the expert went on to say that central bank involvement makes use with a retail CBDC unnecessary because the trust is provided by a central party. Moser said:
“But if you have a central bank, then this is the central party. And if you trust that central party, I think then it’s not really straightforward to reason that you need a blockchain.”
Speaking to Cointelegraph, Moser emphasized that blockchain could still be useful for wholesale CBDC. In contrast to retail CBDC, wholesale CBDC is limited to commercial banks, clearing institutions or other entities that have traditionally had access to central bank reserves. According to a study by major blockchain firm R3, only wholesale CBDCs were in production as of May.
Moser also noted that he is working on a research paper that proposes a retail CBDC without blockchain. According to Moser, the upcoming CBDC project will preserve transaction privacy — a key feature of cash — by utilizing the technology of blind signatures instead of blockchain. The executive said that the paper is co-authored with cryptographer and technology expert David Chaum and Christian Grothoff.
Diehl, the head of payment system analysis at Deutsche Bundesbank, noted that blockchain technology is not necessary for CBDC, citing examples of two major CBDC initiatives: China’s digital yuan and Sweden’s e-krona. “Neither Swedish Riksbank nor the People’s Bank of China seem to be using blockchain, so blockchain is not a must,” the exec said.
Diehl also noted that there is no sense in implementing public, or permissionless, blockchains for CBDC systems. Providing a network for major cryptocurrencies like Bitcoin (BTC) and Ether (ETH), public blockchains cannot be owned by any central party and are completely open to anyone to join and participate. “Unpermissioned blockchains being used for official blockchain transactions, for me, is not conceivable,” Diehl said.
As reported, China’s CBDC — also known as the digital yuan or digital currency electronic payment, aka DCEP — does not use blockchain technology. However, DCEP could implement the infrastructure of China’s national blockchain project, the Blockchain Service Network, according to Cypherium CEO Sky Guo.