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ECB Lays Out Plan for New Crypto-Based Payment System 

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The European Central Bank is stepping up its attempts to integrate a cryptocurrency payment system into its financial infrastructure. 

According to a December 26 report from Finance Magnates, the financial authority has published a study that proposes a new financial model that will help amalgamate the functionality of cryptocurrencies and the regulator’s need to ensure privacy and fraud prevention in financial transactions.

Maintaining Controlled Anonymity 

As the report notes, the new model seeks to introduce a new proof of concept that will lead to a simplified Central Bank digital currency system. The system, which the ECB reportedly dubbed the EUROchain, will allow users to maintain their anonymity when conducting low-value transactions, although transactions of higher value will need to comply with prevalent Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) rules. 

This way, the system would allow users to enjoy their privacy (provided that their transactions don’t cross a certain threshold) and still collect information when required. 

The ECB also clarified that the new currency system won’t be built solely on blockchain technology. Instead, the proposed system will have features built on the EUROchain research network, with support from Irish professional services company Accenture AND New York-based enterprise blockchain services company R3.

There’s little information on the timeline for implementation, but the ECB is said to be in progressive stages of consideration, 

“Although there is no immediate need to take concrete steps towards the issuance of CBDC in the euro area, the proof of concept will be instrumental in any assessment of (i) how CBDC could work in practice and (ii) how the specific technical features of such an initiative will affect its potential implications for the economy,” the ECB concluded.

ECB Drawing Closer to CBDCs  

This isn’t the first time that the ECB will find itself in contact with the cryptocurrency space. Earlier this month, the European System of Central Banks (ESCB) published “Exploring anonymity in central bank digital currencies,” a report which outlined how it used Corda (an open-source blockchain platform built by R3) to develop another proof of concept that featured four parties. 

Within this project, the bank was able to build a solution for AML/CTF compliance procedures, which maintained anonymity in user identity and transaction history.  

The bank is also not shying away from its affinity to cryptocurrencies. On December 12, ECB President Christine Lagarde expressed the need for the institution to “get ahead of the curve” as regards stablecoins, as she pointed out an obvious demand for the assets that the bank will need to meet. 

However, its plan to integrate a crypto payment system has also been hampered by several factors. For one, it outlined in a paper published in August that while stablecoins can be effective financial and investment tools, a lack of regulatory clarity could hamper their adoption and integration. 

In the paper, the ECB explained that governments would need to improve and catch up with this asset class, as a lack of sweeping regulations could cause them to be redundant in the world outside cryptocurrencies. 

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      Jimmy has been following the development of blockchain for several years, and he is optimistic about its potential to democratize the financial system.