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Digital Cash: What It Is and How It Works

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.

Lars Hupel

June 28, 2023
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  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
    [email protected]

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

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