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
2. Who uses card payments the most? 440.4 Lithuania 409.9 Luxemburg 392.6 Denmark Card payments per person per year, 2021 (Statista)
3. “In a modern economy, being able to pay digitally is a basic need for people.“ Fabio Panetta
4. More than 13 million adults in the EU face financial exclusion More than 13 million adults in the EU face financial exclusion
6. Types of money Cash Deposits/E-Money Cryptocurrencies
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?”
8. Can we combine all advantages? Can we combine all advantages?
9. Central Bank Digital Currency CBDC Banknotes Deposits Issued by the central bank Digital money
10. In 2023, over 20 countries will take significant steps towards piloting a CBDC. https://www.atlanticcouncil.org/cbdctracker/
11. What do users want? 33,0 % 100 % secure 29,1 % usable everywhere 24,7 % no fees
13. “Currency cannot be private, money is a public good of sovereignty” François Villeroy de Galhau
14. Creation Creation Distribution Distribution Usage Usage
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
17. offline-capable no double-spending loss recovery debit card https://cepr.org/voxeu/columns/best-personal-loss-recovery-offline-digital-cash 🤔
18. partition-tolerance consistency availability MySQL
19. offline-capable no double-spending loss recovery debit card
20. Modelling digital cash after physical cash Security thread Feel of paper Hologram Private/public keypair
21. Now, where is my money? Custodial wallet Bearer wallet
22. How does a transaction work? Alice Bob € 9
23. How does a transaction work? 0x2A € 8 0x13 € 3 0xA9 € 5 Alice Bob 0x48 € 9 0xC7 € 9 0x4E € 4
24. Validation Alice Bob - € 9 + € 9
27. Payer identity Payee identity Authenticity Ownership
28. Security requirements of (digital) payments Payer identity Authenticity Ownership Non-repudiation No double spending No tracing Payee identity
29. Will this run on DLT? Will this run on DLT? Maybe. Maybe not. Maybe. Maybe not.
30. Why or why not? Consensus of various entities One single source of trust
34. Questions? Answers! Lars Hupel https://lars.hupel.info lars.hupel@gi-de.com
36. Sources • François Villeroy de Galhau: Denis Morin, CC-BY-SA 4.0