What is the digital euro and how is it different from Bitcoin and other cryptocurrencies?


The European Central Bank recently launched an ambitious project to create a digital euro. This currency will be legal tender, complementary to cash and with a series of cool and crypto-like features.

Nevertheless it cannot be said that the ECB is going to launch its own crypto like Bitcoin. There will be significant differences, and although we are still in the research phase and not all the details are known, there are quite a few recognizable differences.


What is the digital euro?

The digital euro will be a legal tender with which economic transactions can be carried out without the need to have a bank account or cash. It will be like having euros in cash but digitally.

The idea behind this project is not to remain in the hands of private alternatives for payments in which cash is less and less relevant. Yes, you can make payments through banks or cards or through cryptocurrencies, but they are not public alternatives which is what the ECB wants to offer.

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In addition, within the digital euro project there are four fundamental aspects: privacy and anti-money laundering, certification, limit on the amount of digital euro in circulation and ** access to the digital euro in areas without Internet **. This last point will have its significant technical challenges but would certainly make it a true alternative to cash.

Differences with Bitcoin and other cryptocurrencies

The main difference that the digital euro will have with Bitcoin and other cryptocurrencies is that it does not appear that they will be mined publicly. In other words, the technical infrastructure that will be behind to support operations will be implemented by the ECB and perhaps the banks of the eurozone. But citizens will not be able, in principle, to mine digital euros.

This has both advantages and disadvantages. The main drawback is that the digital euro can be intervened by the authorities, which is impossible in the case of some cryptocurrencies. Will be a more centralized system, like current bank money.

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But this also has its advantages: a centralized digital euro it does not have to consume as many energy resources as current crypto And it can also have a design that allows it to process many operations per second, much more than Bitcoin or Ethereum.

In short, the digital euro will be the ECB’s alternative to cryptocurrencies in a centralized way and without losing control of it, but offering a solution to those who want to have a completely digital currency without the need to resort to private alternatives.

Does a digital euro make sense?

For me, the main advantage of cryptocurrencies is decentralization: nobody can control them because they are distributed in many independent nodes and protected against attacks by cryptography. However, a digital euro will not be like that, it will simply provide a new form of payments and storage of euros digitally.

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However this already exists: the banking system. It is enough to have an account in the bank to be able to have money from the euro zone digitally and with multiple forms of payment (cards and transfers).

If the ECB thinks that the entire population is not being reached with the current banking system, what must be done is to regulate it better, forcing banks to offer basic accounts and cards free of charge to affected groups or offering said service directly to citizens.

But implementing a cryptocurrency without the advantages of this as a third alternative to payments (apart from cash and the banking system) seems to me to be doing it to get into a fashion and not be left behind. To be honest, I see it unnecessary.


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