European Union unveils first progress report on CBDCs

On June 24, the European Central Bank (ECB) published a comprehensive progress report on the development of a central bank digital currency (CBDC).

The report highlights significant advances in privacy measures, including pseudonymization, hashing functions, and encryption to protect users from transaction tracking.

Privacy Measures and Consumer Controls

Under the ECB’s CBDCs, payment service providers are required to obtain explicit consent from individuals before using their financial data for commercial purposes. This initiative is part of a wider effort by the ECB to ensure consumers’ privacy and control over their personal financial information.

The report also discusses methods to conduct offline transactions. It describes mechanisms that enable direct transfers between individuals without intermediaries, using advanced payment devices on smartphones and innovative “smart cards”.

First CBDC progress report. Source: European Central Bank

These cards, potentially battery-powered or dependent on bridging relays, are designed to sync with the CBDC blockchain even without continuous internet connectivity.

Looking ahead, the ECB has set a timetable for the Rulebook Development Group to finalize the initial version of the CBDC technical and regulatory framework.

After extensive consultations with service providers, infrastructure developers and the public, the group is expected to submit its project by the end of 2024.

Privacy concerns and public opposition

Despite the ECB’s efforts, concerns about privacy and government overreach persist within the cryptocurrency community.

At the recent Oslo Freedom Forum, participants highlighted instances of government abuse of financial power to suppress dissent, illustrating the potential risks of state-controlled blockchain currencies.

A 2023 survey by Trezor found that 73% of respondents were concerned about the privacy implications of CBDCs and the expanded control they could give to governments.

Critics argue that the risks associated with CBDCs, including government surveillance and control of consumer behavior, outweigh their potential benefits, especially compared to existing stablecoins.

These concerns highlight broader issues surrounding CBDC adoption and the potential redundancy of digital fiat issued by central banks.

Political opposition against CBDCs in the United States

In the United States, opposition to CBDCs has become a politically charged issue. Former President Trump expressed his strong opposition to the implementation of CBDCs in the United States, reflecting a broader partisan divide on the issue.

Reflecting these concerns, the United States House of Representatives recently passed the “CBDC Anti-Surveillance State Act,” which aims to highlight the threats that centrally controlled digital currencies pose to freedoms in open societies.

Furthermore, the state of Louisiana has taken concrete legislative action against the adoption of CBDCs. Beginning in August 2024, Louisiana’s revised legislation, known as the Blockchain Basics Act, will prohibit the state from participating in CBDC testing or using such currencies for payments.

The law states: “A government authority shall not participate in any testing of central bank digital currency by the Board of Governors. » Additionally, the legislation establishes strict rules against foreign ownership in digital asset mining within the state, ensuring that digital mining operations remain under local control.

These legislative actions and ongoing public discourse reflect a critical examination of the balance between innovation in fintech and the protection of fundamental human freedoms.

Privacy issues and basic human freedoms remain major concerns regarding the widespread use of central bank digital currencies, as anti-CBDC sentiment continues to grow within the crypto community.

As the ECB advances its CBDC project with a focus on privacy and offline transaction capabilities, significant opposition persists due to concerns over privacy, government control and the potential redundancy of CBDCs against stablecoins existing.

As U.S. lawmakers and states like Louisiana take a stand against CBDCs, the debate highlights the complex interplay between technological innovation and the protection of individual freedoms.

The final draft of the ECB’s technical and regulatory framework, expected by the end of 2024, will constitute a crucial step in ongoing discussions on the future of digital currencies.

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