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ECB Explores Blockchain for Its Digital Euro
Sat Jul 13, 2024 ▪ 3 min read ▪ by Fenelon L.
In a rapidly evolving financial environment where cryptocurrencies are gaining importance, the European Central Bank (ECB) is at the forefront of innovation. The eurozone’s key institution is stepping up its research into blockchain technology for the development of its central bank digital currency (CBDC).
Blockchain at the heart of ECB experiments
THE ECB recently completed a blockchain trial for its central bank digital currency (CBDC), in partnership with cryptocurrency firm Zama. This initiative is part of a global trend where central banks are looking to integrate blockchain technology into their operations.
The experiment focused on liquidity matching, a crucial process that allows banks to align their assets and liabilities, thus ensuring their financial stability. However, implementing this system on a blockchain raises significant technical challenges.
“The challenge is managing liquidity between multiple entities on a blockchain where everything is encrypted,” explains Nigel Smart, Academic Director at Zama. This issue is at the heart of current concerns in CBDC development.
Zama’s fully homomorphic encryption (FHE) technology could provide a solution. It allows computations on encrypted data without decrypting it, thus providing an unprecedented level of security and privacy.
Next to BlockchainThe ECB is exploring the potential of multiparty computing (MPC). This technology enables secure data sharing between multiple parties without compromising the confidentiality of individual information.
The experiment conducted by Zama and the ECB has demonstrated the feasibility of MPC on a national economy scale. “We essentially ran the Finnish economy using an MPC engine and were able to monitor how things were evolving,” Smart reveals. Although promising, the technology still requires further development to be applicable to the entire European economy.
These technological advances could revolutionize the European financial systemensuring greater efficiency and security in transactions. The ECB continues to explore these innovative ways, paving the way for a major digital transformation in the banking sector.
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Fenelon L.
Passionate about Bitcoin, I enjoy exploring the depths of blockchain and cryptocurrencies and sharing them with the community. My dream is to live in a world where privacy and financial freedom are guaranteed for everyone, and I have realized that Bitcoin is the tool that can make this possible.
DISCLAIMER
The views, thoughts and opinions expressed in this article are solely those of the author and should not be construed as investment advice. Do your own research before making any investment decisions.