European Central Bank is exploring blockchain and MPC technology
Central banks worldwide are increasingly exploring blockchain technology adoption, with the European Central Bank (ECB) being the latest example.
The ECB has recently completed a blockchain experiment for its central bank digital currency (CBDC) with Zama, according to the firm's chief academic officer, Nigel Smart.
He said during a panel discussion at FHE Summit 2024:
“We did one with the European Central Bank on liquidity matching… And a number of applications on CBDCs have been actually to remove the central bank out of the equation and replace it with a blockchain.”
Liquidity matching refers to the process of banks ensuring that their financial inflows and assets are aligned with their outflows and liabilities, to avoid the risk of not having enough funds to meet financial obligations.
Related: North Carolina’s CBDC ban bill vetoed by governor
Blockchain-based liquidity matching: the most pressing concern
However, liquidity matching remains a challenge for multiple parties transacting on the same blockchain network, according to Zama’s Smart. He explained:
“Then the issue is if you have multiple entities on the blockchain and it's all encrypted stuff, how do you do liquidity matching? That's a really big issue.”
Smart, who is also a prominent cryptographer, is building Fully Homomorphic Encryption (FHE) solutions for blockchain and artificial intelligence (AI) , at Zama.
FHE-based encryption enables computations to be performed on encrypted data without decrypting it.
Zama secured a $73 million Series A funding round at the beginning of March , to further develop the firm's FHE stack and offer developers more tools to build data privacy solutions.
Related: Crypto needs to remove friction for the next billion users: Coinbase
Multiparty computation can support the entire Finnish economy
Multiparty computation (MPC) — which enables multiple parties to share data for computing without revealing the actual data — can theoretically support the entire Finnish economy.
Zama’s smart revealed that their MPC-based experiment with the ECB proved successful, but supporting the entire European economy will still take time. He said:
“We did an experiment with the European Central Bank where we essentially ran the Finnish economy through an MPC engine, and we could keep track. We could actually keep up with Finland, which is good, but not on the European scale yet.”
He added that the financial sector is increasingly exploring MPC technology, which could bring more use cases to large financial institutions.
Magazine: Are CBDCs kryptonite for crypto?
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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