The European Central Bank (ECB) released a <a class="_e75a791d-denali-editor-page-rtfLink" href="https://www.ecb.europa.eu/paym/intro/publications/pdf/ecb.mipinfocus191217.en.pdf?3824c3f26ad2f928ceea370393cce785" target="_blank" rel="noopener">report</a> on Tuesday outlining the details of its Central Bank Issued Digital Currency (CBDC) payment system focused on partial anonymity and complete compliance. The new payment system is built on Corda <a class="_e75a791d-denali-editor-page-rtfLink" href="https://www.cryptoknowmics.com/crypto/a-comprehensive-guide-for-bitcoin-and-blockchain/" target="_blank" rel="noopener">blockchain</a> and makes use of Proof-Of-Concept (POC) to promote anonymity to a certain degree. The new system would allow the users to send small transactions via Central Bank without having to reveal their identity.

The newly developed <a class="_e75a791d-denali-editor-page-rtfLink" href="https://www.cryptoknowmics.com/crypto/can-cbdc-undermine-the-decentralization/" target="_blank" rel="noopener">CBDC</a> payment system would make use of anonymity vouchers for small transactions, but the same won't be applied for more significant transactions. The report notes,
<blockquote>"The proof of concept shows that it is possible, using the Corda platform, to build a simplified CBDC payment system that safeguards users' privacy for lower-value transactions, while still ensuring that higher-value transactions are subject to mandatory AML/CFT checks,"</blockquote>
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<h2>How the PoC Based CBDC Payment System Works?</h2>
The newly developed PoC based payment system works on the Corda blockchain, where there are in total four parties involved as a node in the network. The first party is the Central Bank itself; then, there are two intermediaries and an <a class="_e75a791d-denali-editor-page-rtfLink" href="https://www.cryptoknowmics.com/crypto/fincen-us-to-strictly-enforce-aml-laws-on-cryptocurrencies/" target="_blank" rel="noopener">AML</a> authority. Each of these four parties represents a node, and each node operates a Corda Dapp. The central bank won't interact with the customers directly, as that would be the task of intermediaries who will also be responsible for maintaining the ledger.

A pseudonym on the network will represent each user on the payment platform, and they would be granted a fixed number of anonymity vouchers per month. The user can spend these vouchers for the smaller transactions if they don't want to reveal their personal information. If the transaction limit is over the allotted anonymity voucher, then the AML team comes into the picture. They verify all the details regarding the transaction and ensure that it meets with all the AML compliance.

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<h2>The Regulatory Concerns of ECB and EU</h2>
ECB might have proposed the PoC based payment system now, but there has been a long debate whether the ECB should go ahead with a CBDC despite EU's regulatory clampdown on digital currency. The EU authorities in early December made it clear that stable coins like CBDC should not be allowed in the financial ecosystem unless all regulatory and legal compliance are addressed. At that time, Jean-Claude Trichet, the former President of ECB, agreed on the rough stance towards digital currencies.

However, the current ECB President ECB Christine Lagarde believes that they should remain ahead of the curve, especially when China is already set to launch its digital currency while many other nations are planning to do the same. These digital currencies like CBDC should be concentrated on, as in the future, the value of these tokens will be tied to the government-issued currencies.

ECB Builds CBDC Payment System on Corda Blockchain

ECB has worked on a CBDC payment system based on Proof-of-concept levarages corda blockchain to fecilitate anonymous transactions.

An engineering graduate, Prashant focuses on UK and Indian markets. As a crypto-journalist, his interests lie in blockchain technology adoption across emerging economies.

ECB Builds CBDC Payment System on Corda Blockchain

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