The European Central Bank (ECB) has revealed prototypes for a digital euro while preparing to make a decision on whether or not to adapt the fiat currency into a new format. The potential central bank digital currency (CBDC) has been designed to boost innovation. However, it appears more skeptical about using Web3-style distributed ledger technology and smart contracts. Rather than blockchain, the ECB’s prototypes favour a centralized model based on unspent transaction outputs (UTXO) that are used in cryptocurrency transactions. It is claimed that the UTXO system “allows for fast and efficient validation of transactions” while maintaining privacy protection. In a letter to the European Parliament, ECB Executive Board member Fabio Panetta said that the findings “will serve as input for both functional and technical design of a digital euro.”
EU lawmakers called for a U-turn on the proposed digital euro plans amid concerns over Amazon’s involvement in the prototypes. However, Panetta downplayed Amazon’s long-term significance in the project, referring to the prototypes as a “lab experiment” that would not be used further. He explained that the prototypes showed it is possible to integrate digital euro design choices into the existing payment landscape while still providing ample scope for innovative features and technologies.
In June, the European Commission will publish a bill covering digital euro privacy safeguards and other major issues. However, lawmakers have expressed scepticism regarding the CBDC’s benefits, particularly if it does not allow for innovations such as programmable money, where users can control how funds are subsequently used. The EU is one of many jurisdictions across the world currently contemplating a CBDC, including the Bank of England.
