The European Central Bank (ECB) has released a summary of the results of its central bank digital currency prototyping exercise. The exercise investigated the offline use of a simulated digital euro and four other cases of interoperability with existing payment systems.
The project was part of the second phase of the Eurosystem’s preparations for a possible pilot launch of a digital euro in the autumn of this year.. The exercise ran from July 2022 to February 2023.
The Eurosystem developed for the exercise a centralized settlement engine called N€XT that used an unspent output transaction (UTXO) model. Private companies provided five prototype client interfaces representing different use cases. Self-custody wallets were also tested.
The UXTO model preserved customer privacy by using one-time UTXO addresses that did not reveal the wallets that contained them. The user experience was identical for the custodial and non-custodial wallets.
The case of offline transactions proved more problematic. The report concluded that the goal was to “deep understand how the combination of hardware and software protocol could prevent double spending and ensure settlement firmness and non-repudiation”:
“Doubts remain as to whether existing technology is capable of delivering, in the short to medium term (five to seven years), a secure, production-ready offline solution.”
However, the exercise demonstrated that “online and offline digital euro prototypes can be interoperable even if they are based on different data models and technical designs.”
Simultaneously with the summary of the exercise, the ECB public a “Report on the results of the market study” on the digital euro. It also concluded that “offline solutions that meet Eurosystem requirements would be novel and could create uncertainty as to when an offline solution might be ready.”
I’m honored to have @EU_Commission President Ursula @vonderleyen with us here in Frankfurt as we mark the ECB’s first quarter of a century.
Let’s keep working together for a united and peaceful Europe. pic.twitter.com/6smP7soWxX
—Christine Lagarde (@Lagarde) May 24, 2023
I am honored to have @EU_Commission President Ursula @vonderleyen join us here in Frankfurt as we celebrate the first quarter century of the ECB.
Let us continue working together for a united and peaceful Europe.
Respondents favored near-field communication, Bluetooth interfaces, or QR codes for offline transactions. The market research addressed 12 highly technical aspects of a potential digital euro launch, such as proxy hunting and dedicated cash account management.
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