“A question of political will”

According to a study, 114 countries were working on a digital central bank currency at the end of January. In the EU, the European Central Bank (ECB) is currently investigating the possible introduction of a digital euro. In the crypto community, however, CBDCs are controversial. Some praise them as a cheap alternative for international payment transactions, others fear for their privacy. The topic is “a question of political will”, says Dr. Jonas Gross from the Digital Euro Association. In an interview with BTC-ECHO, he explains exactly what the CBDC expert means by that.

BTC-ECHO: What are the ideals of crypto for you?

Jonas Gross: What I like most about Bitcoin is its scarcity. Then there is the censorship resistance and the open source idea. These are topics that solve concrete problems and thus contribute to a fairer society.

I wouldn’t call myself a bitcoin maximalist, more of a realist. For me, other projects have also earned a place in the ecosystem under certain conditions. For example, I also look at stablecoins, the digital euro as the eurozone CBDC and other CBDCs. I find general projects in payment transactions exciting if they have use cases and find answers to specific problems.

You mentioned the issues of censorship resistance and scarcity. Aren’t these ideals jeopardized by CBDCs?

CBDCs do not aim to ensure scarcity. A CBDC system will also be less open than Bitcoin, for example. A CBDC will not fulfill the ideals I have mentioned for Bitcoin. But that’s not the goal either. But I don’t think the comparison really fits either, because the use cases are simply different.

For many, China is a big negative example in this context, mainly because of the lack of privacy. What lessons does Europe draw from this?

The topic of privacy is super important for the digital euro. It has a different status in Europe than China.

You can also develop a CBDC more privately and give the CBDC the same privacy as cash. From complete anonymity to certain thresholds for anonymous payments to transparent payments, there are various technological possibilities. Thus, the level of privacy is not a technological issue, but rather a question of political will. Instead of demonizing CBDCs, I think people should get involved in the discussion and advocate for more privacy.

What are those possibilities?

One topic would be zero-knowledge proofs. There we had a concept at the time drafted and presented to some central banks. But there are also blind signatures, like David Chaum’s e-cash. Last but not least, you can also enable more privacy via secure hardware elements, i.e. small chips.

Doesn’t that counter the idea that central banks are pursuing with CBDCs, especially with regard to money laundering and terrorist financing? There will definitely be limits.

Yes, one hundred percent. This is also the approach that both we as the authors of the study and the Digital Euro Association are proposing for the e-euro. Complete anonymity up to a certain limit, and really anonymous, true to the motto: Don’t trust, verify. But only up to a certain threshold, from which the person then also has to KYCen themselves. Although many Bitcoiners will not like this, the topic of combating money laundering and terrorist financing is simply too important.

The ECB is currently working on a digital euro. What is the current development status?

The ECB is in an investigation phase. It formally started in October 2021 and will run until October 2023. It is mainly about possible designs that the e-euro could have. Among other things, it is about the design of privacy, how payments are settled and what role banks should play in this. There are many discussions with stakeholders, associations, banks. After the phase, the council decides how to proceed with the project.

Is there a direction already recognizable?

Officially, the ECB has not yet decided whether it will actually issue a digital euro one day. However, my feeling tells me that the digital euro will come, also because of the political implications. I do hope, however, that something will happen, especially on the subject of privacy.

Is the ECB currently opposing this issue?

No, in principle she can already imagine pursuing such a limit approach. She has already communicated this in relevant publications. But that would probably only happen in one of the subsequent versions of the digital euro. From a communicative perspective, I find it a bit difficult to convince the citizen that the CBDC will suddenly offer a higher level of privacy from a certain point in time. Especially since it will apply to all countries in the euro zone.

Doesn’t a CBDC give a central bank or governments too much power over the citizens?

That is of course the fundamental question. I don’t think there will be one form of money that will survive in the future. There will be several in competition with each other.

I also do not share the critics’ narrative that a CBDC is coming soon and that cash will be abolished in the medium term. Of course, cash is becoming less and less important as a means of payment in society, also accelerated by the pandemic. This can start a negative spiral. When people stop using it, fewer and fewer stores offer it. Put yourself in a world where cash is hardly used anymore and we have a CBDC that does not allow anonymity for payments. Such a world where payment privacy is low is not desirable in my opinion. I’m a fan of digital currencies per se, but I still use cash to pay for almost everything because I value privacy.

Thank you for the interview.

Disclaimer: This interview was created in collaboration with BTC-ECHO editor Dominic Döllel.