The central bank of Estonia has discovered what it describes as ‘unlimited potential’ in its blockchain based digital euro trials, after discovering that blockchain tech can ‘in theory’ support almost unlimited scale in transaction throughput.
Following an experiment conducted in collaboration with several other local central banks inside the euro area, Eesti Pank announced it had discovered a “novel blockchain-based solution could in theory support almost unlimited numbers of payments being processed at the same time.”
Working in partnership with counterparts in Spain, the Netherlands, Germany, Italy, Greece, Latvia and Ireland, the experiment was powered by the same blockchain technology as its e-Estonia digital society scheme, which uses the technology to increasingly digitize dealings between the state and its citizens.
As part of the experiment, participants sent payments across borders between the test countries, using their digital identities in order to facilitate the transactions. The study found that transaction volumes of almost 300,000 transactions per second were possible, with payments settling in as little as 2 seconds.
The executive summary, published by Eesti Pank, did not mention which blockchain they used for the digital euro trials, although it noted that “the CBDC system evaluated combined an existing blockchain-based platform with novel architecture for money and payments, instantiating value in digital bills, which are fixed-value tokenised representations of banknotes that represent the liabilities of the central bank.”
The trial focused on three areas: the blockchain’s scalability as a possible infrastructure for a digital euro; how the blockchain can be combined with the existing digital ID and digital signature systems for user authentication and authorization in remote transactions; and how different degrees of privacy can be afforded to different parties under various deployment models and in compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations.
A spokesperson for Eesti Pank said this demonstrates that blockchain tech could handle all euro transaction volumes comfortably, removing any artificial limits on its money supply: “This technology does not set any essential limits on the size of the money supply. The system is able to handle the entire supply of euros in circulation and more.”
The development follows on from the announcement by the European Central Bank earlier this month that it was actively investigating developing a digital euro, in a scheme that is set to run for a period of 24 months.
The news means Europe is a step closer to a formal rollout of a central bank digital currency, at a time when increasing numbers of central banks worldwide are exploring the technology.
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
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