The European Central Bank (ECB) is busy developing a digital euro. The project is still in the prototype phase. Later in the year, the decision will be made about it further course of it.
The ECB is thus one of the many central banks in the world dealing with a national digital currency. The digital euro is a form of one central bank digital currency (CBDC). A CBDC is a type of stablecoin issued and controlled by a central bank of a country (or countries). Compared to other cryptocurrencies, these types of CBDCs immediately serve as legal tender.
Digital euro does not use blockchain
The ECB is positive about the innovative possibilities that a digital euro can offer. However, they do not (yet) see any benefit in a CBDC that uses smart contracts. In contrast, the agency prefers a centralized system. It does have a striking resemblance to bitcoin (BTC) and uses the UTXO model.
The UTXO model
The ECB wants to use it unspent transaction output (UTXO) model. It is a term used in the world of cryptocurrencies, and in particular in the Bitcoin protocol. A UTXO is an output of a transaction that is not yet used as an input for another transaction. It is basically an unsent transaction. Your bitcoin holdings are actually made up of UTXOs.
According to a new report of the European Central Bank, the UTXO system is ideal for efficiency and speed. The report further details that the UTXO system supports various payment types while protecting privacy. In addition, the system allows conditional payments without using smart contracts.
In June, the European Commission will publish a dissertation. It will discuss privacy protection for the digital euro and other crucial issues.