Blockchain not necessary for Central Bank Digital Currencies: Experts

Blockchain not necessary for Central Bank Digital Currencies: Experts

Implementing public or permissionless blockchain not conceivable for CBDC says exec

Executives at major European central banks have explained why most retail Central Bank Digital Currency (CBDC), do not require blockchain technology. Thomas Moser, an alternate member of the governing board at Swiss National Bank, and Deutsche Bundesbank’s Martin Diehl discussed the state of CBDCs in an online panel discussion at the European Blockchain Convention Virtual 2020 conference yesterday.

Both Moser and Diehl cited various reasons to substantiate why blockchain technology was unsuitable for CBDCs. Moser stated that blockchain’s primary use case was to provide trust in the absence of a central party within a project. “Like for instance, Bitcoin. I think it is a very good use case for blockchain,” he noted.

However, with CBDC, the involvement of the central bank makes it unnecessary to use blockchain as a trust-building mechanism, he explained. “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,” the expert stated.

In a conversation with CoinTelegraph, Moser stressed that blockchain could be beneficial to wholesale CBDC projects. Unlike retail CBDC, wholesale CBDC is limited to commercial banks, clearing institutions, or other entities that have traditionally had access to central bank reserves. Major blockchain firm, R3 reported in a study that wholesale CBDCs were in production as of May.

Moser explained that the upcoming CBDC projects are aimed at preserving transactional privacy by utilizing the technology of blind signatures instead of a blockchain. He added that he was collaborating with cryptographer and technology expert David Chaum and Christian Grothoff to work on a research paper that proposes a retail CBDC without blockchain.

Martin Diehl cited the examples of the two major CBDC initiatives – China’s digital yuan and Sweden’s e-krona to explain that blockchain was not a necessary attribute for CBDC projects.  “Neither Swedish Riksbank nor the People’s Bank of China seems to be using blockchain, so blockchain is not a must,” the expert said.

Diehl further noted that implementing public or permission-less, blockchains for CBDC systems was not feasible. Public blockchains cannot be owned by any central party and are completely open to anyone to join and participate. “Un-permissioned blockchains being used for official blockchain transactions, for me, is not conceivable,” Diehl said.

Though China’s digital yuan does not use blockchain, it can be a key vehicle in the implementation of China’s national blockchain project.

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