The ECB lists the digital euro prototyping exercise as the possible launch of a pilot approaches

The European Central Bank (ECB) has published a summary of the results of its digital euro central bank digital currency (CBDC) prototype exercise. The exercise examined the offline use of a simulated digital euro and four other cases of interoperability with existing payment systems.

The project was part of the second phase of the Eurosystem’s preparations for a possible pilot launch of a digital euro in the autumn of this year. The exercise ran from July 2022 to February 2023.

The Eurosystem developed a centralized settlement engine for the exercise, called N€XT, which used an unspent transaction output (UTXO) data model. Five prototype customer interfaces representing different usage scenarios were provided by private companies. Self-custody wallets were also trialled.

The UXTO model preserved customer privacy using one-time UTXO addresses that did not reveal the wallets they were in. The user experience was identical for custodial and non-custodial wallets.

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The use case for offline transactions was more problematic. Seeking “a more in-depth understanding of how the combination of hardware and software protocol can avoid duplication and ensure settlement finality and non-repudiation,” the report concluded:

“The question remains whether the existing technology is capable of delivering a production-ready and secure offline solution in the short to medium term (five to seven years).”

Nevertheless, the exercise showed that “online and offline digital euro prototypes can be interoperable, even if they are based on different data models and technical designs.”

Simultaneously with the summary of the exercise, the ECB published a “Market Research Outcome Report” on the digital euro. It also found that offline “solutions that meet Eurosystem requirements would be new and could create uncertainty as to when an offline solution could be ready.”

I am honored to have @EU_Commission President Ursula @vonderleyen with us here in Frankfurt as we mark the ECB’s first quarter century.
Let’s continue to work together for a united and peaceful Europe. pic.twitter.com/6smP7soWxX

— Christine Lagarde (@Lagarde) May 24, 2023

Survey respondents preferred near-field communications, Bluetooth interfaces, or quick response (QR) codes for offline transactions. The market research largely covered 12 technical aspects of a possible digital euro rollout, such as proxy lookup and special cash account management.

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