Digital Cash: What It Is and How It Works

When we think of "electronic payments", there are a lot of different interpretations: bank cards, credit cards, PayPal and the likes, mobile money, and cryptocurrencies. But they all work in widely different ways. Lately, many central banks – including the European Central Bank – have started investigating or piloting digital currencies to introduce yet another way to pay electronically. In this talk, I will explain the technical (and social) differences between those payment methods and give insights into how such a digital currency platform could be designed.

Transcript

1. Digital Cash
   What it is and how it works
   Lars Hupel
   GOTO Amsterdam
   2023-06-28
   

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2. Who uses card payments the most?
   440.4
   Lithuania
   409.9
   Luxemburg
   392.6
   Denmark
   Card payments per person per year, 2021 (Statista)
   

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3. “In a modern economy,
   being able to pay digitally
   is a basic need for
   people.“
   Fabio Panetta
   

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4. More than 13 million adults in
   the EU face financial exclusion
   More than 13 million adults in
   the EU face financial exclusion
   

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6. Types of money
   Cash Deposits/E-Money Cryptocurrencies
   

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7. Basic functions of money
   Legal tender Means of payment
   Unit of account Store of value
   “Can I pay my taxes?” “Can I pay at a shop?”
   “Would I use it for
   my pension?”
   “How much
   does this cost?”
   

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8. Can we combine all advantages?
   Can we combine all advantages?
   

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9. Central Bank Digital Currency
   CBDC
   Banknotes Deposits
   Issued by the
   central bank
   Digital money
   

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10. In 2023, over 20
    countries will
    take significant
    steps towards
    piloting a CBDC.
    https://www.atlanticcouncil.org/cbdctracker/
    

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11. What do users want?
    33,0 %
    100 % secure
    29,1 %
    usable everywhere
    24,7 %
    no fees
    

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13. “Currency cannot be
    private, money is a public
    good of sovereignty”
    François Villeroy de Galhau
    

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14. Creation
    Creation Distribution
    Distribution Usage
    Usage
    

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16. 1
    ECB will not deal
    with users directly
    2
    Digital Euro will not
    be programmable
    4
    Payments can be
    conducted offline
    3
    Legal tender
    without interest
    

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17. offline-capable
    no double-spending
    loss recovery
    debit card
    https://cepr.org/voxeu/columns/best-personal-loss-recovery-offline-digital-cash
    🤔
    

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18. partition-tolerance
    consistency
    availability
    MySQL
    

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19. offline-capable
    no double-spending
    loss recovery
    debit card
    

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20. Modelling digital cash after physical cash
    Security thread
    Feel of paper
    Hologram
    Private/public
    keypair
    

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21. Now, where is my money?
    Custodial wallet Bearer wallet
    

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22. How does a transaction work?
    Alice Bob
    € 9
    

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23. How does a transaction work?
    0x2A € 8
    0x13 € 3
    0xA9 € 5
    Alice Bob
    0x48 € 9
    0xC7 € 9
    0x4E € 4
    

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24. Validation
    Alice
    Bob
    - € 9
    + € 9
    

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27. Payer identity Payee identity
    Authenticity
    Ownership
    

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28. Security requirements of (digital) payments
    Payer identity
    Authenticity
    Ownership
    Non-repudiation
    No double spending
    No tracing
    Payee identity
    

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29. Will this run on DLT?
    Will this run on DLT?
    Maybe. Maybe not.
    Maybe. Maybe not.
    

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30. Why or why not?
    Consensus of
    various entities
    One single source
    of trust
    

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34. Questions?
    Answers!
    Lars Hupel
    https://lars.hupel.info
    lars.hupel@gi-de.com
    

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36. Sources
    ● François Villeroy de Galhau: Denis Morin, CC-BY-SA 4.0
    

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