A representative from digital identity platform SPACE ID believes the ECB’s [European Central Bank] work on the digital euro leaves plenty to be desired, especially regarding privacy. Alice Shikova made the comments following the release of the ECB’s second progress report.
“The ECB’s second progress report on the digital euro, published yesterday, shows just how complicated the process of setting up a national digital currency is from a privacy perspective,” Shikova observed. “The report suggests that the ECB intends for the digital euro to have a ‘cash-like level of privacy’ and that the Eurosystem won’t be able to access individual transaction data. It says it will use ‘privacy-enhancing’ technologies, like pseudonymization, hashing and encryption to protect this data.”
However, considering these frameworks are being put in place by the very centralized system that is issuing the digital euro, what guarantee is there that access to data will be entirely segregated? It is clear that the Eurosystem will have the power to conduct ‘emergency overrides’ and access the data if certain AML or tax laws are breached. The question is, what exactly are these thresholds, and how can we be sure that these powers aren’t abused? In short, who will safeguard the safeguards?”
Shikova said the ECB’s recognition of the importance of privacy is commendable, but it is pursuing privacy-enhanced strategies rather than a privacy-first approach – and there’s a huge difference. Web3 solutions are privacy-first solutions, meaning that privacy is at the heart of their design rather than an afterthought.
“That means full privacy, not selective based on whether some system has picked up your transaction as suspicious – which, by the way, can happen with entirely legitimate transfers of as little as €1,000 on some centralized platforms today,” she said.
“There’s also the question of cybersecurity. We know centralized governmental entities are notoriously lax with their security measures – does anyone remember the SEC Twitter account hack? So, do we want to be trusting all our financial transaction data to a centralized government? For anyone in the crypto community, the answer will be an unequivocal ‘no’.”