In a rapidly evolving financial context where crypto is gaining importance, the European Central Bank (ECB) positions itself at the forefront of innovation. The pivotal institution of the eurozone is intensifying its research on blockchain technology for the development of its central bank digital currency (CBDC).

Blockchain at the heart of ECB experiments

The ECB recently concluded a blockchain experiment for its central bank digital currency (CBDC), in collaboration with Zama, a company specializing in crypto. This initiative is part of a global trend where central banks seek to integrate blockchain technology into their operations.

The experiment focused on liquidity matching, a crucial process allowing banks to align their assets and liabilities, thereby ensuring their financial stability. However, implementing this system on a blockchain raises significant technical challenges.

“The challenge lies in managing liquidity between multiple entities on a blockchain where everything is encrypted,” explains Nigel Smart, Academic Director at Zama. This issue is at the core of current concerns in the development of CBDCs.

The fully homomorphic encryption (FHE) technology developed by Zama could provide a solution. It allows for computations on encrypted data without decrypting it, thus offering an unprecedented level of security and privacy.

MPC: A promising tool for the European economy

Alongside blockchain, the ECB is exploring the potential of multiparty computation (MPC). This technology allows for the secure sharing of data between multiple parties without compromising the confidentiality of individual information.

The experiment conducted by Zama and the ECB demonstrated the feasibility of MPC on the scale of a national economy. “We essentially operated the Finnish economy using an MPC engine, and we were able to monitor the situation’s evolution,” reveals Smart. While promising, this technology still requires further development to be applicable to the entire European economy.

These technological advances could revolutionize the European financial system, providing greater efficiency and security in transactions. The ECB continues to explore these innovative avenues, paving the way for a major digital transformation in the banking sector.

Source : Cointribune EN - Jul 13, 2024