In a rapidly evolving financial landscape where crypto is gaining prominence, the European Central Bank (ECB) is positioning itself at the forefront of innovation. The eurozone’s pivotal institution is stepping up its research into blockchain technology for the development of its central bank digital currency (CBDC).
Blockchain at the heart of ECB experiments
The ECB recently concluded a blockchain trial for its central bank digital currency (CBDC), in collaboration with crypto-focused company Zama. The move is part of a global trend where central banks are looking to integrate blockchain technology into their operations.
The experiment focused on liquidity matching, a crucial process that allows banks to align their assets and liabilities, ensuring their financial stability. However, implementing this system on a blockchain raises significant technical challenges.
” The challenge lies in managing liquidity between multiple entities on a blockchain where everything is encrypted» explain Nigel Smart, Academic Director of Zama. This issue is at the heart of current concerns in the development of CBDCs.
Zama's fully homomorphic encryption (FHE) technology could provide a solution. It allows computations to be performed on encrypted data without decrypting it, providing an unprecedented level of security and confidentiality.
The MPC: a promising tool for the European economy
Alongside blockchain, the ECB is exploring the potential of multi-party computing (MPC). This technology enables the secure sharing of data between multiple parties without compromising the confidentiality of individual information.
The experiment conducted by Zama and the ECB demonstrated the feasibility of the MPC on the scale of a national economy. We basically ran the Finnish economy using an MPC engine, and we were able to follow the developments, ” reveals Smart. Although promising, this technology still requires developments to be applicable to the entire European economy.
These technological advances could revolutionise the European financial system, offering greater efficiency and security in transactions. The ECB continues to explore these innovative avenues, paving the way for a major digital transformation of the banking sector.
Maximize your Tremplin.io experience with our 'Read to Earn' program! For every article you read, earn points and access exclusive rewards. Sign up now and start earning benefits.
Click here to join 'Read to Earn' and turn your passion for crypto into rewards!
