During an interview at a Reuters conference, the ECB’s President, Christine Lagarde, noted that bitcoin had some “funny business” and asked for a global layer of regulation for bitcoin.
This was a bit of an off-hand remark, but also comes at the same time as the ECB releasing the results of the end of public consultation around the digital euro, as well as a statement from Christine Lagarde that the digital euro was likely to come about in the next five years.
The digital euro will be the European Union’s version of a central bank digital currency, so the two remarks in combination seem to indicate more of a hybrid approach of trying to maneuver against bitcoin while promoting the ECB’s vision for its digital euro.
In a previous whitepaper, the ECB articulated its view on the digital euro. Worries about money laundering likely mean, of course, that even though the public supports privacy, the ECB is not going to be strongly tied to that.
After all, exceptions carved into privacy standards can become the norm: a backdoor anywhere is a backdoor to the entire system. With policy figures obsessed with cooperating with tax authorities or AML authorities, it’s clear that data will be able to be tapped in a way that wasn’t possible with cash versions of the euro or other fiats.
Instead of contenting itself with monitoring the onramps and offramps and exchanges where cash might touch digital ledgers, the ECB is now advancing a potential placeholder for its supported version of digital currency — one it wants you to think is inherently privacy-respecting.
The vision in the early 90s from David Chaum, Hal Finney and others of cash becoming an electronic ledger in the control of governments has never come closer to being true. This moment is the beginning of the convergence of the digital yuan, the digital yen, the digital euro — and eventually, of course, the digital dollar, with bitcoins and cryptocurrencies as the only independent hedge.
The irony of course, is that the ECB questions bitcoin’s “funny business” while proposing a system that is inherently less trustable and less secure. Policy centralization led to the 500 Euro bill being one of the favored tools of money launderers — and a slow, anemic pullback when this was realized, even with the mechanisms of power aligned that this was probably a bad idea.
The digital euro will also obey Europe’s monetary policy — which is just now undergoing a radical experiment with negative interest rates. And while bitcoin offers privacy options (at least for metadata) for the weak, and transparency for the powerful (a public, open ledger where “whales” are watched every time they aggregate transfers), the digital euro may aim and actually achieve to have transparency for the weak, while obscuring the actions of the powerful.
After all, the ECB wants to know as much as it can about the aggregate state of its network, as well as some chosen individuals: technical backdoors and political backdoors beget holes in the integrity of the system already. In deciding that technocrats are going to implement arbitrary security standards, rather than testing security empirically, we may see the same people who secured Equifax EFX -2.5%, SolarWinds SWI +4%, and others have their fingerprints on digital money rather than an already more established and empirically tested security of checks and balances.
Unchecked technical capability and an unbalanced approach decided by a few rather than tested by many to how people can exchange metadata for utility gives states capacity with no constraints, while offering them little incentive to have the public discussions that spill out in bitcoin forums around the world, or are pored over as open source code.
Aside from “public consultations” that are time-capped and various whitepapers and PDFs that might be seldom read, can we expect a digital euro to compete with open source communities in their transparency, education, and openness to third-party monitoring?
Some bemoan the slowness of bitcoin improvement proposals (BIPs), but those are transparently laid out so that a decentralized consensus of many perspectives can come together. Somehow, the ECB’s timeline (five years or less, hopefully), is markedly higher than the amount of improvements bitcoin has seen in that time period and is almost longer than ethereum’s lifespan — while offering much less empirical evidence for its integrity or potential success.
In embracing a centralized digital currency, the ECB is fundamentally missing the democratic nature of the discourse of bitcoin and the way decisions are made in a a decentralized and incentive-balanced way.
One can harken to Thomas Mann’s appeal to democracy as a call to respect individual dignity and education — a call that echoes further in the nodes and miners of the bitcoin network system and the open ecosystem of educational resources created by independent creators, coders, nodes, and miners, rather than the ECB technocrat’s dream of top-down impositions through whitepaper.