Interesting article as usual. Could it be the case that technology designed to solve undeveloped market problems could go some way to solving the developed world problems of CBDC’s always being available? Paycode (www.paycode.com) has an operational digital payment platform in Africa which is specifically designed to continue to work when the network is unavailable (or even non-existent) which is often the case in the remote areas where we work. We do this by storing the client funds on the wallet of the smart card and the double spend problem is solved by removing the cash from the wallet on the card and storing it in a chip based secure environment in the POS until such time as the network is back or the transaction are stripped in a similar way to the Trusted Execution Environments (TEE’s) envisaged by Visa I suspect. We can also do an offline load of funds to a card using a 10 digit code which enables the recipient to spend those funds without having to go online, assuming of course that they can provide the biometrics that match the ones on the card itself. Everything is integrated with the central banks RTGS system and with multiple retail and small banks also - in Ghana that is 38 main banks and 127 rural banks for example - so a potential channel for distribution of CBDC's whilst maintaining the fractional banking model? More problems to solve I am sure, but we are pretty close to operating a digital currency system already just not issued as digital currency yet. David would be delighted to show you more if you are interested. – gabe@paycode.com
It looks like the Bank of Japan, votes for NFT-based cash solution rather than for TEE-based fungible one. Russian Central Bank - as well http://cbr.ru/eng/analytics/d_ok/dig_ruble/.
I am not convinced that NFT-based cash is a good substitute for the paper cash. I think, almost nobody will use it for something more important than to buy a cap of cold coffee or a fare for a cancelled ride when there is no electric power :-).
From the government's standpoint, if they want to conquer the world, via the currency cold war, they can do this better with fungible cash.
I agree that TEE solutions need to overcome some technical difficulties though.
- Low-value offline cash transactions via TEE-in-sim-card would be low risks.
- High-value ones may require more protected and larger TEE devices, may be, similar to Hardware Security Modules being used in traditional payments and encryption technology. Even such bigger devices would be more convenient than bank vaults, safety boxes, armored cars, ATMs, or suit cases used to carry millions of paper dollars (I watched those in "Pulp Fiction", etc.).
For theft deterrent, the cash withdrawn from shared ledger coins may initially keep the original NFTs within the wallet. The TEE can remove the NFT traces on the wallet owner's request. This may require some additional brainstorming.
Great analysis - as always. From a Dutch perspective: we (I believe) are the only country in the world where we have a legal requirement for the uptime of the debitcard infra of 99,88%. According to the Dutch NCB, cash (as in physical euro notes and coins, we just celebrated their 20th anniversary yesterday!) still is the only (partial) fall back solution to keep the economy going in case the debitcard infra would go down (which has not happened for several years). However, please be aware NL is the country with the lowest "CTD@POI" ratio in the Eurozone according to the ECB). Come on. Banknotes as the emperor's clothes. But they do have a valid point, and that is where I totally agree with Dave: the alternative should of course be a separate infrastructure, online or off line, that does not go down together with the infra it is supposed to be the fall back for. We easily figured out that one, the digital alternateives: MAT, a QR code solution through IP, a second PoS terminal over a different network ...). But here we have a dilemma: what is the business case for building a separate infrastructure, that hopefully will never be used or perhaps only a few seconds/minutes per annum? Nobody is going to do that (voluntarily) unless the fall back solution has the potential to become the primary infrastructure (winner takes all, after all, right?), after which the whole cycle repeats itself. As cycles always do. So, coming back to the CDBC/digital euro issue: perhaps it's better to just stick (just a little bit) to the bloody banknotes until we have figured out what a "digital 100% alternative" (which, mind you, is not the same as a "100% digital alternative") especially for those of us who are no so digitally savvy or have physical and/or mental disabilities. And what is the problem anyway that we are trying to solve here?
You raise an excellent point here Gijs - is disaster recovery a sufficient business case for e-cash - I think it is not, but it is part of a business case. I will think some more about this before I write some more.
Interesting article as usual. Could it be the case that technology designed to solve undeveloped market problems could go some way to solving the developed world problems of CBDC’s always being available? Paycode (www.paycode.com) has an operational digital payment platform in Africa which is specifically designed to continue to work when the network is unavailable (or even non-existent) which is often the case in the remote areas where we work. We do this by storing the client funds on the wallet of the smart card and the double spend problem is solved by removing the cash from the wallet on the card and storing it in a chip based secure environment in the POS until such time as the network is back or the transaction are stripped in a similar way to the Trusted Execution Environments (TEE’s) envisaged by Visa I suspect. We can also do an offline load of funds to a card using a 10 digit code which enables the recipient to spend those funds without having to go online, assuming of course that they can provide the biometrics that match the ones on the card itself. Everything is integrated with the central banks RTGS system and with multiple retail and small banks also - in Ghana that is 38 main banks and 127 rural banks for example - so a potential channel for distribution of CBDC's whilst maintaining the fractional banking model? More problems to solve I am sure, but we are pretty close to operating a digital currency system already just not issued as digital currency yet. David would be delighted to show you more if you are interested. – gabe@paycode.com
It looks like the Bank of Japan, votes for NFT-based cash solution rather than for TEE-based fungible one. Russian Central Bank - as well http://cbr.ru/eng/analytics/d_ok/dig_ruble/.
I am not convinced that NFT-based cash is a good substitute for the paper cash. I think, almost nobody will use it for something more important than to buy a cap of cold coffee or a fare for a cancelled ride when there is no electric power :-).
From the government's standpoint, if they want to conquer the world, via the currency cold war, they can do this better with fungible cash.
I agree that TEE solutions need to overcome some technical difficulties though.
- Low-value offline cash transactions via TEE-in-sim-card would be low risks.
- High-value ones may require more protected and larger TEE devices, may be, similar to Hardware Security Modules being used in traditional payments and encryption technology. Even such bigger devices would be more convenient than bank vaults, safety boxes, armored cars, ATMs, or suit cases used to carry millions of paper dollars (I watched those in "Pulp Fiction", etc.).
For theft deterrent, the cash withdrawn from shared ledger coins may initially keep the original NFTs within the wallet. The TEE can remove the NFT traces on the wallet owner's request. This may require some additional brainstorming.
Great analysis - as always. From a Dutch perspective: we (I believe) are the only country in the world where we have a legal requirement for the uptime of the debitcard infra of 99,88%. According to the Dutch NCB, cash (as in physical euro notes and coins, we just celebrated their 20th anniversary yesterday!) still is the only (partial) fall back solution to keep the economy going in case the debitcard infra would go down (which has not happened for several years). However, please be aware NL is the country with the lowest "CTD@POI" ratio in the Eurozone according to the ECB). Come on. Banknotes as the emperor's clothes. But they do have a valid point, and that is where I totally agree with Dave: the alternative should of course be a separate infrastructure, online or off line, that does not go down together with the infra it is supposed to be the fall back for. We easily figured out that one, the digital alternateives: MAT, a QR code solution through IP, a second PoS terminal over a different network ...). But here we have a dilemma: what is the business case for building a separate infrastructure, that hopefully will never be used or perhaps only a few seconds/minutes per annum? Nobody is going to do that (voluntarily) unless the fall back solution has the potential to become the primary infrastructure (winner takes all, after all, right?), after which the whole cycle repeats itself. As cycles always do. So, coming back to the CDBC/digital euro issue: perhaps it's better to just stick (just a little bit) to the bloody banknotes until we have figured out what a "digital 100% alternative" (which, mind you, is not the same as a "100% digital alternative") especially for those of us who are no so digitally savvy or have physical and/or mental disabilities. And what is the problem anyway that we are trying to solve here?
You raise an excellent point here Gijs - is disaster recovery a sufficient business case for e-cash - I think it is not, but it is part of a business case. I will think some more about this before I write some more.