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2021-3: "Why a Digital Euro should be Online-first and Bearer-based " published

We are happy to announce the publication of our paper on "Why a Digital Euro should be Online-first and Bearer-based".

The European Central Bank’s “Report on a Digital Euro” considers two distinct types of designs for a digital euro. It argues that all functional requirements laid out in the report can be fulfilled by operating the two systems in parallel:

  • A bearer-based digital euro based on trusted hardware that can be used offline, anonymously, and without third-party intervention.
  • An account-based digital euro that can be used online, is fully software- based and excludes the possibility of anonymity.
The report does not discuss other choices of hybrid systems. However, the choice is more arbitrary than it might seem at first sight: bearer-based systems are not necessarily offline payment systems, and online payment systems do not need to exclude anonymity.

We argue that operating a bearer-based payment system to complement an account-based CBDC in order to gain offline and privacy features is not a good trade-off. Adding permanent, regular offline capabilities via the bearer-based payment instrument constantly exposes the CBDC to the severe issues inherent in offline-capable payment systems. Instead, the offline mode of operation should be restricted to scenarios where it is actually required, which mitigates the risks.

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