What is Cryptoeuro? A CBDC for Europe

The cryptoeuro or EUROChain, a project that seeks to transform the current euro into a central bank digital currency (CBDC), to transform it into XNUMXst century money. Learn about this project and the impact it would have on all countries and citizens of the Union.

El boom of Bitcoin it has aroused the suspicion of central banks, and the European central bank is no exception. Bitcoin, with its ability to free people from money monopolized by a few, is something central banks want to stop. For that reason, they have started to create CryptoEuro, a European-based CBDC.

There have been many voices that have been raised for and against this project, technological and economic development for Europe. In fact, it has been of special interest, not only for specialists in the crypto community, but also for the countries of the Union. And even the same economic and financial authorities represented by the European Central Bank (ECB).

And it is that without a doubt, this would be a huge project of technological innovation that would lead Europe to create a currency that will greatly promote the automation of the use of money, traceability and interaction between different entities.

But what is behind the cryptoeuro? How does it work? What can we expect in the future about cryptoeuro?

What is Cryptoeuro?

The cryptoeuro is a project under study by which the European Central Bank (ECB) seeks the creation of a digital currency controlled by the ECB, as is the case with the current euro. Most of these efforts are focused on EUROChain, a proof-of-concept system that was unveiled in December 2019 in the report "Exploring anonymity in central bank digital currencies."

In this document the possibility of designing a digital currency managed by the ECB is studied and opened. It is explained how this CBDC would be supported by DLT technology, more specifically Corda technology from the R3 company. This together with a series of systems that would serve to create a new system of payments and money supply. All of this adjusted to the needs of privacy and controlled anonymity to ensure compliance with the regulations aimed at combating money laundering and terrorist financing (AML / CFT).

Additionally, the ECB establishes that the European System of Central Banks (ESCB) Start with building a proof of concept to test the technology. Some of this evidence is closely supported by companies like Accenture and R3. However, this report also clarifies that the work performed is not geared toward practical implementation and does not imply any decision to proceed with CBDC. In short, the ECB is only looking into the technology but does not plan to launch a cryptoeuro at the moment, unless the need arises in the future.

What does this ECB study offer us?

Thus we have that EUROChain and its cryptoeuro offers us the following:

1. A digital solution for AML and CFT compliance that conceals the identity of the user and the transaction history of the central bank or third parties (unless chosen by the user).
2. Limits for anonymous transactions to be enforceable through automation.
3. An anonymity coupon system, which allow users to transfer a certain amount of funds on CBDC anonymously for a specified period of time.

Taking into account that, currently, most of the money used in Europe is digitized and is used in the form of a credit card, with a society accustomed to the use of digital money, the appearance of this CBDC by the European Central Bank could reduce the risks of insolvency in institutions and lower the costs of use for consumers.

What we know about the proof of concept for cryptoeuro and EUROChain

In the document released by the ECB we can clearly see the proof of concept proposal that they seek to carry out for EUROChain. In said proposal they clarify that EUROchain would present a dependency on certain "intermediaries", which would be the central banks of the nations that are part of the Union.

Each of these intermediaries would have one or more nodes and all the necessary infrastructure to make EUROChain work within its territory. This means that each node would have access to the central bank's ledgers and reserve balances to provide digital currency options to central bank users.

This actually is very similar to the current interbank payment system, except that the information handled by the nodes would be represented in real time in all the nodes at the same time. Additionally, the system could allow certain levels of privacy, as with low value transactions. At the same time, higher value transactions would be subject to AML / CFT compliance checks.

Other functions within the ECB scheme

In this sense, the EUROChain and its cryptoeuro can represent the following functions:

1. In the first place, it would serve for the settlement of securities (ie trade settlements).
2. It would serve to create payment solutions for member central banks to provide to their users.

The cryptoeuro would have a similar and even extended operation of the current fiat, as has happened with other CBDC representations in other countries. Additionally, the ECB establishes the creation of a series of additional elements for the control and distribution of the currency, among which we can mention:

1. A two-tier system of intermediaries, much like that established by the DCEP, China's digital currency. In this way, the ECB would depend on the central banks of the Union nations being able to access the ledger and reserve balances at the central bank, which would allow the use of CBDC among users. Thus intermediaries process transactions for their institutional clients who receive custody services from the central bank.
2. The ECB would retain the role of issuing CBDC units or taking them out of circulation.
3. An identified AML authority will process AML / CFT compliance checks for large transactions. Additionally, this Authority monitors transactions to ensure that restricted users (i.e. due to sanctions or investigations) cannot send or receive CBDC.

In short, the current banking and financial system would not change to a great extent, the institutions and controls remain, in some cases, they are strengthened due to the digital and traceable nature of digital currencies.

Some additional comments from the ECB to CBDCs

1. Make money available to everyone with an efficient, safe and modern central bank.
2. Strengthening the capacity for recovery, availability and contestability of retail payments.
3. Better control of illicit payments and savings, money laundering and terrorist financing activities.
4. It allows to exceed the ZLB (Zero Limit Bound or Zero Lower Limit) since negative interest rates can be applied to a CBDC.
5. Interest rates on CBDC provide additional monetary money that can be used in political instruments, independent of the ZLB.
6. It makes it easy to provide money by helicopter, or simply put, to get money to users in economic emergencies.
7. Improves financial stability and reduces moral hazard for banks.

Functions provided in the proof of concept of the cryptoeuro in EUROChain

On the other hand, the ECB document also describes some of the functionalities that we could see in the possible development of this cryptoeuro, among which we can highlight:

User addresses

The addresses of each user is created by an intermediary bank. In this way, each bank is responsible for providing its clients with one or more pseudonymous identities that can be used as addresses for the CBDC payment network.

Anonymity coupons

One of the most “interesting” functions of cryptoeuro and EUROChain is the creation of anonymity coupons. These have been created in order to provide users with usage limits in which their transactions are not actively monitored to enforce AML / CTF laws and regulations.

With these coupons, basically a cryptoeuro user can make low-value transfers with a high degree of anonymity, but in case their transfers exceed a certain value, they will be subjected to more in-depth scrutiny, in order to enforce the aforementioned regulations. .

These anonymity coupons will be issued free of charge and would not be transferable between users. They are simply a technical tool used to limit the amount of CBDC that can be transferred anonymously.

Issuance and distribution mechanisms.

When a broker receives a CBDC issuance request from a client, they verify that the client's post-transaction CBDC balance will remain below any wallet limits that they may have set. If that's the case, the broker requests CBDC units from the central bank on behalf of its client.

This means that the issuing central bank does not limit the supply of CBDC in a way that could lead to excess demand from its users, as the limits only apply to the level of each individual wallet. Conversion to and from CBDC always occurs in a one-to-one ratio, to ensure that CBDC has the same value as alternative forms of the same currency.

The central bank debits the intermediary's reserve balance and authorizes the creation of new CBDC units by approving (hence, “signing”) the issuance request through its node.

Transfers

In the case of balance transfers between cryptoeuro users on EUROChain, these are carried out without any participation on the part of the Central Bank. The user simply sends a transfer instruction indicating the amount, the beneficiary's pseudonym (account identifier and intermediary identifier) ​​and whether or not the payment must be made anonymously.

Thus, if this is the first time that the payee has received CBDC units from the payer's intermediary, the transfer begins with a search request by the payer's intermediary to obtain the address of the payee through his intermediary.

Will we ever see cryptoeuro come true?

As we have seen, the ECB has well defined some of the fundamental pillars of a CBDC applicable to the European Union, however, will we ever see cryptoeuro made a reality? At the moment, it is unlikely that we will see it in the medium term. The truth is that systems such as the euro and its interbank system already act very well for the needs of the Union. So there would be a major revolution in the use of fiat currencies for Europe to change its perspective and rein in the final development of a cryptoeuro.

In fact, the same president of the ECB, Christine Lagarde, has commented that:

“My personal conviction is that given the events we see, not so much in the bitcoin segment but in stable cryptocurrency projects, we only know one at the moment but there are others that are being explored and on the way, it would be better for us to be at the forefront if that happens, because there is clearly a demand outside to which we have to respond "

In that sense, it is clear that at the moment the ECB does not see the need to radically change its position and launch itself into the development of a cryptoeuro for Europe. The position it has taken is quite similar to that taken by the FED in the United States and they only maintain technological feasibility studies in case they see it necessary to act in that regard.

However, both the position of the FED and the ECB is the same, if both decide to bet on the CBDC they will do so under a scheme where control is still in their hands. Hence, the similarity of the ECB's system to that of China's DCEP and many other CBDCs in the world is not uncommon. In all these cases, control and power are in the hands of the central banks, since it is they who ultimately decide whether or not a transaction is approved, and under what conditions, and this will be the same with centralized or distributed technology.

However, it remains to be seen how the world will react with the launch of projects like DCEP, the reaction to this project could accelerate or slow down the plans of the rest of the world to launch its own CBDC and flood the world with digital currencies from central banks. Hence, years like 2021 and 2022 are key in this regard, many countries and central banks will maintain their studies, developments and research in this regard, but all will be attentive to the movements of the world and their reaction to make their own movements and take advantage of the experience of others to be successful in their own endeavors.

Differences with Bitcoin

Now that you have just read the horror tale of the cryptoeuro and its EUROChain, let us tell you the following: without a doubt a CBDC looks as much like Bitcoin as a porn website looks like the Vatican website. If both are websites, they have images, content ... but they are definitely not the same.

While it is true that a purely digital euro would greatly improve the disastrous performance of the current euro, there is always something that will never improve, give us freedom. On the contrary, it will take away our freedom. In essence, what they seek is to hide the lack of freedom by making the place where they lock us up a little bigger. It is as if we live in a prison where they want to compensate us by giving us freedom, freedom to choose the color of the bars. But it is still a prison.

A well-designed crypto euro could give institutions transparency, allow the creation of smart contracts that eliminate intermediaries. And at the same time, automate processes in times of the Internet of Things (IoT) exchanging value between machines,…. Just a moment. We already have this! It is Bitcoin. So why isn't Bitcoin used if it already exists? The answer is very simple. Because Bitcoin is not controlled by them, they would not control the money, which is what allows them to get rich.

What Cryptoeuro is not (and never will be)

In return they propose us a substitute made up with things that they might like, and then wake up the next day with something that you did not understand how you could accept. Among those characteristics where they put us "pig for a hare" we can count:

1. It is not an open blockchain, only a few control it, in reality the banks of all life are the ones who control everything. And we already know that they all have the same interests and are subject to legal pressure from an institution to do what it asks. Bitcoin and cryptocurrencies were born to keep us away from banks, so why accept falling into their hands with a CBDC controlled by them?
2. An intermediary must authorize you, who can deny you. For example, Bit2Me is denied a bank account for supporting cryptocurrencies. In these cases it is clear who is really the enemy of your freedom.
3. Euros are Euros, regardless of their form. "Although the monkey is dressed in silk, the monkey stays." These euros, although they want to make them cryptocurrency, which have nothing to do with Bitcoin, are euros that control a pseudo-private entity, a monopoly money with which they force us to play but they decide how to issue, to whom to distribute it, to who to favor or who to sink. We give them the power to control what gives power and access to everything, money, and with it control us all, subjected without understanding how and when.
4. The "coupon privacy" mechanism is a joke. That a third party has to decide when you have privacy or not, only means one thing: you do not have privacy, you do not own your privacy because now they control it and "give it to you" at will.
5. If you have ever feared what happens in other countries where the money of its inhabitants is simply frozen by a simple order, imagine what would happen with a CBDC. Especially with the scheme that the ECB intends to impose with the cryptoeuro. It would be enough to literally press a button so that the money of one person, of a country of the Union, or that of the entire Union will be frozen.
6. The “Money in Helicopter” thing is another point of terror in this entire system, especially because of what it causes: inflation. “Helicopter Money” or “Quantitative Expansion”, all of that boils down to simply printing play money, monopoly money that floods us and makes the currency lose its value. In fact, the greater the money supply in circulation, the less value the currency has, and the poorer it makes us all.

Cryptoeuro may be a good tool. It may even be made with the best intentions in the world, seeking to solve the problems that afflict us in economic and financial matters, but the idea must be taken with a grain of salt. Something especially true when we know who the promoters of these measures are and how they act. They say that the road to hell is paved with good intentions. Now what do you think of this? Do you think CBDCs like cryptoeuro are better than cryptocurrencies like Bitcoin in any way? You can comment and generate debate with us and those who visit us on this interesting topic.