Banking Blockchain Cryptocurrency Currency Ethereum Finance Government News Opinions Regulation

Vitalik Buterin: Will Central Bank Digital Currencies Be Cryptographically Provable?

February 6, 2020

author:

Vitalik Buterin: Will Central Bank Digital Currencies Be Cryptographically Provable?

In a recent Tweet, posted on February 4, 2020, the young father of the Ethereum Foundation, Vitalik Buterin, asked the community about the verifiability of Central Bank Digital Currencies (CBDC).

Buterin says, for example, that even Bitcoin transactions can be verified via light BTC clients run on the Ethereum blockchain, making Bitcoin an even stronger option for secure and immutable transactions, as they can be verified not only by the Bitcoin chain but from other accredited public ledgers as well, in this case, the Ethereum.

So the question is: how can we be sure that the banks are really using a DLT in case it’s not public for everyone to see and verify? Couldn’t the bank simply allow transactions that should not be normally eligible for promotion or vise versa stop transactions that fulfill all the requirements anyway?

In such a scenario, regardless of the method of settlement, the bank is still a bank, and it really doesn’t matter whether they use blockchain or not as long as some of the blockchain’s key attributes are not on the display.  

Read More: Belgium’s Top Banks Will Share Customer Data Using Blockchain

Vitalik Buterin’s question is more than just that

That is a really interesting question that no one asked loudly I assume because we were all somehow convinced that CBDCs will be indeed extremely private and centralized and that the blockchain part is meant only to speed up the transaction, eliminate cross-border fees and provide some sort of a digital ledger, accessible by the bank-issuer and only.

So, why not use SWIFT instead, the long-trusted settlements service they used to utilize for quite some time now? Why bother with blockchain in the first place?

I believe that the banks, especially state-backed central banks, are not particularly into blockchain, but they are indirectly forced to utilize it simply because that is what people need nowadays. 

For example, banks keep updating their fintech services, websites, create new fancy cards with modern color palettes, promote ads while you’re listening to Spotify and all that only because they need the end consumer to trust them even if that’s linked to providing the customer with what he wants to hear or see. 

Read More: Central Banks’ Joint Attempt Versus Libra To Maintain State-Backed Monetary Power

So, blockchain is no different in this case. There is a high chance banks are utilizing blockchain technology nowadays simply for the sake of it, and because they clearly see that a majority of netizens have turned their interest for monetary management towards public authority-less services such as Bitcoin. 

On the other hand, whether its blockchain or not, since we can’t really tell what’s going on behind the scenes and under-the-table, there’s no real incentive to use a bank-powered blockchain. 

I mean, surely the fees and settlement times will be less and faster, but that’s a commonly agreed protocol between international banks anyway. If they wanted faster and cheaper transactions they could do it with or without blockchain, and again, if agreed between the respective banks.

Verdict

Concluding, Vitalik Buterin ‘s question should be considered as ‘food for thought’ for anyone involved in the DLT sector that sees CBDCs coming closer to an official release. 

We are already aware of projects such as China’s DC/EP, the Euro Chain, and analogous propositions by the US, RU, CA, JP, and other monetary power-brokers, that attempt to stay relative in the competitive monetary scene by offering blockchain services among other financial instruments.

Read More: Japan Joins The Digital Currency Field According to Financial Regulators

In the end, my personal opinion is that I can’t really tell whether an organization is using blockchain or whatever if I cannot be assured by the issuer himself. If there is no mechanism that allows anyone to see what happened in the network in a transparent fashion, this network will be always subject to manipulation and misleading behavior as agreed by the issuers.