Recently, the heads of the European Central Bank – Thomas Moser of the Swiss National Bank and Martin Dell of the Deutsche Bundesbank – said that central bank digital currencies do not need a blockchain.
They expressed their views by stating that blockades – especially public or unauthorized ones – are meaningless for central bank digital currencies. The reason is that central banks are central parties. Hence, blockchain as a decentralized ledger is not relevant. It’s a shame, but it looks like scribes are inadvertently (or intentionally, who knows?) Drawing conclusions about why and how blockchain technology can be used, especially with CBDC.
Among the general public, two misconceptions prevail. First, improperly authorized distributed ledger technologies are often referred to as “blockchain” because they have similar functions. However, it is not completely decentralized, immutable and uncensored compared to unlicensed blockchain (but we will not discuss this issue today).
Second, why do we need blockchain technology and how it can be used to solve real-world problems. It’s time for the blockchain community to roll up their sleeves and start educating people, especially those who make decisions at the state level.
Any existing public blockchain can be used for a wide range of applications related to finance, property rights, copyright, or anything of economic value that can be represented as a non-perishable token.
Firstly, it is a blockchain protocol with cryptocurrency. At this level, we are not designing anything; We take it and use it as it is. It contains all the functions needed to create the second layer: the application layer and the transparent blockchain; It is decentralized and immutable. Has its own digital currency; And we can publish data about it.
The stability and ability to permanently store the data that users can enter into transactions has allowed us to create everything we know except cryptocurrency: smart contracts, tokens, key value records, and irrevocable records with arbitrary data. This is the application layer. Here we can design any interaction with all parties, including central banks. And this is not completely contrary to the nature of the technology, because the blockchain is the level of a decentralized public repository for transactions and data. Both central banks and blockchain technology can coexist with such a platform.
Let’s imagine digital currencies are traded on a blockchain like Bitcoin, Ethereum or any other ledger in the top 100 cryptocurrencies on CoinMarketCap (none of the below should be considered due to security concerns)
For example, Alice goes to the bank, gives a bag of money and asks the employee to issue tokens for the appropriate amount. There are two transactions to be performed on the blockchain. Alice makes tokens (or colored coins), and in a transaction she signals a bank transaction. In its transaction, the bank confirms that Alice’s token represents funds with this amount. Alice now has digital money in her cryptocurrency wallet. They can exchange them for cryptocurrencies or other tokens, or buy something else and use it as money if everyone trusts the bank. When other people go to the bank (or any other bank), they return the previously earned money tokens that were first brought to the bank by Alice, and then the tokens are destroyed because they are no longer valuable.
Why do I need a bank statement? If Alice loses her private key, the bank will update the records and announce that these codes are no longer valid. Bank records are also required to combat money laundering and other illegal activities. Tokens can be shared and transferred multiple times for everyone. This is where the rules come into play: know your customer, money laundering, anti-terrorism financing, etc. transactions, he could not redeem them. All transactions are transparent and traceable. In accordance with the procedure established by law, the bank can initiate a transaction by which these funds will be recognized as invalid. The coins will remain in Bob’s wallet, which he will still control, but become useless money.