The case for central bank digital currency as public infrastructure to enable digital assets

I have dabbled a fair amount with all sorts of crypto currencies and their respective permissionless networks. In fact, I have been dabbling since 2012 which is by my last count a whopping 12 years.

While I have always maintained that I do believe the general concept for digitization and programmability of assets is on the right path, its implementation, the user experience, the accessibility, the fraudulent activities, and the overall inefficiencies permissionless DLTs have, never made me into a true believer. I have stated that opinion on several occasions, here, here and here.

There are still barriers to entry when it comes to digitization of assets: sustainable- and interoperable infrastructure. To illustrate this, I recently asked a notary public here in Zurich, why they can’t store the notarized documents as PDFs, the answer surprised me: because they must keep records for at least 70 years. Now, think about what would have happened if we stored these documents on floppy disks, or tapes. A problem that even NASA has to deal with, but in short there’s no guarantee that PDFs or the medium that they are stored on, will still be accessible in 70 years. Should we want to digitize this today, it would require a constant evolution or upgrade path for the medium and its data.
The reason tokenization of assets is so hard is because it lacks public infrastructure. That’s the same thing that gives us the road we drive on, the electricity we consume, and even the Internet itself.

Enter CBDCs

The EU is working on a digital Euro, it is meant to be a cash replacement, but more interestingly, it will be legal tender. In other words, merchants and businesses will have to accept it and because of that, one side of the network guarantees adoption, especially if merchants decide to favor the digital Euro because of the lower cost associated with it.

There are other attributes that make the digital Euro an interesting proposition for payments and money transfers, but in the context of this post, the most interesting aspect is that it could lay the foundation for the infrastructure that’s needed to tokenize assets. Not necessarily the digital Euro itself, because there will be certain thresholds in place, but by rolling out a whole ecosystem, that allows for the exchange of digital tokens (online and even offline) and that is governed by a public entity.

Of course, this is entirely against the original idea of crypto, namely the decentralization and being under no rule, but given that this hasn’t worked thus far, and I’ve tried to lay out in the articles above why this is probably never going to work, having a public infrastructure that is maintained, and sustained maybe a viable option to digitize assets.

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