Digital euro experimentation – key learnings

Testing of end-to-end payments using the blockchain-based solution achieved the equivalent of 15,000 retail payments per second, with additional testing of core components alone showing that this could be scaled up to 325,000 retail payments per second.

In September 2020 the Eurosystem’s High-Level Task Force on Central Bank Digital Currency launched experimental work on a digital euro with a view to assessing, and gaining further insights into, the technological feasibility of design choices identified in the Report on a digital euro.

Experts from the euro area national central banks and the ECB participated in the experiments, which were grouped into four work streams. These work streams assessed different design features covering four main areas: the digital euro ledger, privacy and anti-money laundering (AML), limits on digital euro in circulation, and end-user access.

Digital euro ledger

One of the key questions addressed by the experiments was the extent to which the digital euro ledger could be limited by the technological choices in terms of performance and flexibility. The work streams that conducted experiments with the TIPS system and a blockchain-based digital euro provided some answers in that regard.

The prototypes were able to exceed the threshold of 10,000 transactions settled per second.(1) Testing of end-to-end payments using the blockchain-based solution achieved the equivalent of 15,000 retail payments per second, with additional testing of core components alone showing that this could be scaled up to 325,000 retail payments per second. The solution based on the TIPS system comprised only the settlement system behind a transaction injector simulating instructions sent by intermediaries and showed that it could process up to 40,000 transactions per second.

Regarding the latency in transaction settlement, with the blockchain-based solution, 95% of the transactions could be signed by the payer, settled and cryptographically verified by the payee in fewer than three seconds, while with the TIPS-based solution, 95% of the transactions could be settled in fewer than 0.8 seconds.(2)

Further scalability assessments could be carried out to evaluate the impact on the throughput of other design choices (such as privacy techniques, remuneration, etc.). To estimate the potential environmental impact of a digital euro, the power consumption of the core settlement systems was measured and assessed to be in the order of a few kilowatts to run thousands of transactions per second.

One experiment also found that payment channel networks could be used to enhance scalability and privacy. However, some legal questions would need to be clarified before they could be considered for implementation. For example, could digital euro exchanged in the payment channel network be viewed as a direct claim on the central bank (i.e. a CBDC) or a claim on the channel counterparty to deliver digital euro (i.e. not a CBDC)? For this, it would be necessary to determine the role of each node in the payment channel network from a legal point of view, as well as the implications of those roles, e.g. is a node acting as a settlement agent when forwarding a transaction within the payment channel network?

The potential addition of programmability features to a digital euro was also investigated because the provision of additional logical conditions linked to the payment instructions (that could be defined by third parties) could support innovative business processes and help central banks to define the properties of central bank money and control the conditions of its allocation and use.

The ledgers tested demonstrated that various types of automation could be programmed into DLTs by

i) deploying different blockchain protocols built either on token-based standards or not,

ii) through comprehensive functionalities, or iii) as a restricted set of instructions.

Automation in case of a centralised ledger (e.g. by third parties deploying automation relying on external services and instructing payment processing on a central ledger) was not tested at this occasion. With regard to offline payments, the experiments confirmed their feasibility from a technical point of view.

However, they did not answer all the questions on how to fully control the risk of double spending. One of the key elements in ensuring the integrity of the system over time is that transactions cannot be offline indefinitely, i.e. offline devices will at some point need to resynchronise with the online ledger.

For more details download the full report: Digital euro experimentation scope and key learnings

_____________

1) This estimate is based on the total number of cash and card retail transactions in the euro area per year (around 300 billion), assuming a uniform distribution of transactions along all seconds of the year.

2) In further testing, the blockchain-based solution demonstrated a reduced payment time of 1.3 seconds