ECB summarizes digital euro prototyping exercise ahead of potential pilot launch

The European Central Bank (ECB) has released a summary of the results of its testing of a digital euro central bank digital currency prototype. The testing included investigating the offline use of a simulated digital euro, as well as four other instances of interoperability with existing payment systems.

This project was part of the Eurosystem’s preparations for a potential pilot launch of a digital euro in the fall of this year. The testing took place from July 2022 to February 2023.

The Eurosystem developed a centralized settlement engine for the testing called N€XT that used an unspent transaction output (UTXO) data model. Private companies provided five prototype customer interfaces that represented differing use cases. Self-custody wallets were also tested.

The UXTO model preserved customer privacy by using one-time UTXO addresses that did not reveal the wallets holding them. The user experience was the same for both custodied and non-custodied wallets.

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The offline transactions use case was more problematic. The report concluded that, in the short to medium term (five to seven years), it is unclear whether existing technology is capable of delivering a production-ready and secure offline solution that could avoid double spending and ensure settlement finality and non-repudiation.

Nonetheless, the testing showed that online and offline digital euro prototypes can be interoperable even if based on different data models and technical designs.

The ECB also published a “Market Research Outcome Report” on the digital euro alongside the testing summary. The report found that offline “solutions compliant with the Eurosystem requirements would be novel and might create uncertainty when an offline solution might be ready.”

Survey respondents favored near-field communication, Bluetooth interfaces, or QR codes for offline transactions. The market research addressed 12 highly technical aspects of a potential digital euro rollout, such as proxy lookup and dedicated cash account management.

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“I’m honored to have @EU_Commission President Ursula @vonderleyen with us here in Frankfurt as we mark the ECB’s first quarter of a century. Let’s keep working together for a united and peaceful Europe.”

— Christine Lagarde (@Lagarde) May 24, 2023