- 18 April 2023
- Posted by: Vincenzo Stefanini
- Categories: Investing & Trading, Money
What is the digital euro and how does it work?
The European Central Bank (ECB) is working on the introduction of the digital euro.
It would be a digital currency, issued directly by the ECB, to be used for electronic payments in the Euro area, made through a card or an app on your smartphone.
The main reason for the changeover to the digital euro is the need to improve the security and reliability of electronic payments.
When will it be introduced?
The preliminary phase began in October 2021 and should end about two years later, in October 2023.
At that point, the Governing Council will decide whether to move on to the next phase, which is dedicated to developing integrated services and conducting tests and possibly practical experiments.
This phase could take about three years.
In any case, the diffusion of the digital euro will probably be gradual.
What will happen to cash?
The ECB says the digital euro would complement cash, not replace it.
On the other hand, cash is less and less used for payments, in fact online and contactless payments have soared during the pandemic.
If this trend were to continue, cash would eventually lose its relevance as a means of payment.
So, over time, the digital euro could completely replace cash.
What are the privacy risks?
The ECB says payments via digital euro will remain private and privacy will be protected.
This is hard to believe, as the ECB would find itself collecting data on individual users’ payments and tracking payment habits, in an indirect way.
This would potentially mean being able to link each economic transaction and individual payment data (e.g. amount, business name, list of products purchased) to the identity of a specific user, in addition to metadata relating to the transaction (for example the IP address of the device used and the geographical location).
This would be inevitable because the central bank could be forced to share its data with third parties, in case it is required for the prevention of illegal activities.
Furthermore, access to the digital euro would require the creation of one’s own digital identity to be associated, therefore anonymity cannot be guaranteed.
Therefore, the introduction of the digital euro will completely eliminate the benefits of cash payments, which guarantee anonymity and privacy.
What is the difference between the digital euro and Bitcoin?
Although both are electronic coins, therefore not physical, to be used for payments, the differences are many and substantial.
To open a Bitcoin wallet and use it, you don’t need to ask anyone’s permission: it is created independently, without the need for a bank and without having to provide your personal data.
The digital euro is controlled by the European Central Bank, while bitcoin is decentralized, i.e. it is not managed by a single entity.
Bitcoin can be used anywhere in the world, while the digital euro is limited to countries that join the Eurozone.
Bitcoin’s monetary policy is not flexible, it is limited by software and cannot be changed. There will be at most 21 million bitcoins, which are gradually issued via a mathematical algorithm.
Conversely, the ECB can decide at any time to increase or decrease the amount of money available in the system, effectively creating inflation or causing a recession.
For this reason, bitcoin can be considered a similar and superior store of value to gold, since the available quantity is limited.
In light of this, owning Bitcoin is crucial if you want to secure your financial freedom and avoid digital surveillance.
If you want to know more about how to buy and keep bitcoins, or about how to invest, send me an email at info@vincenzostefanini.it
