Digital Euro vs Bitcoin: Trust-fostering Design

Abstract

In the last decade we have seen a digital transformation of the financial industry. Bitcoin has emerged as a new form of payment, disrupting the traditional way of storing monetary value and conducting financial transactions. The benefits offered by the decentralized, peer-to-peer architecture of Bitcoin and other cryptocurrencies have garnered widespread popularity globally particularly in the Global South. Nevertheless, the level of trust and adoption in Bitcoin have been hindered by a number of drawbacks including Bitcoin’s price volatility and lack of regulatory clarity. Central banks around the world have responded to the rapidly evolving financial landscape by introducing its own unique digital currency, known as Central Bank Digital Currencies (CBDCs). Presently, the European Central Bank (ECB) is investigating its own kind, namely the digital euro, that aims to be the digital equivalent of cash. Despite the ongoing research by the ECB, academic research on the potential trustworthiness of centralized digital currencies like the digital euro has not been adequately addressed. Further investigation is needed to understand how the digital euro can foster trust among users particularly in comparison to Bitcoin. This thesis therefore seeks to identify the trust factors (social, technical, institutional, economic, sociotechnical) that are most important for the ECB to consider in the design of the digital euro through a 2-round Delphi study consisting of a panel of five industry experts. The study comprised an initial semi-structured interview round followed by a subsequent survey round with the aim of reaching consensus on the most important trust factors for the design of the digital euro, as well as to understand the underlying reasonings with regard to consensus and non-consensus reaching issues. The present study finds consensus on 10 trust factors that are crucial for the ECB to consider in designing the digital euro for trust. Additionally, the panelists identified volatility and reputation as the primary drawbacks of bitcoin, which are effectively addressed by the digital euro through its institutional support and backing that ensures its stability, as well as the pre-existing trust and credibility in the ECB that helps to enhance the digital euro’s reputation. Based on the 10 trust factors, the present thesis recommends that the ECB should implement measures to ensure stability, adopt a privacy-by-design approach, allow for privacy-enabled low value transactions, ensure seamless UX/UI, and a hybrid account-based and token-based verification system.