how biometrics can help the ECB deliver a secure digital euro

By Vince Graziani, CEO, IDEX Biometrics

Interest and acceptance of cryptocurrencies and digital currencies are growing, with national media, financial institutions, and even government circles discussing how to adopt cryptocurrency technology. China launched e-CNY in 2021, and the British parliament recently launched a All Party Parliamentary Group (APPG) to discuss the role digital assets will play in the UK, where already three million adults are known to own cryptocurrency. The European Central Bank (ECB) has also started exploring the future of crypto, commissioning a project to study the potential of a digital euro.

A two-year investigation, ending in October 2023, is taking place to determine the feasibility of a central bank digital currency (CBDC) for Europe. It conducts a detailed exploration of what a digital euro might look like, how it might be designed and distributed to markets, retailers and the public, and what legislation is needed.

Focus groups for the ECB survey show that consumers want the digital euro to be as flexible as the cash euro and to be functional across the eurozone, as well as online. Instant, easy and contactless payments are also high on the list of wanted features, following the decline in cash purchases seen during the pandemic. Research Participants are considering a “one stop solution”: they have a vision for a single device that will reduce the need for multiple cards, mobile phones and computers, and also provide access to a range of payment options.

How can a digital euro guarantee security?

Although there is a demand for a convenient digital currency, the commission and the public also have security concerns regarding cryptocurrencies. Hackers have impacted the industry since its inception. Regulation is also minimal, unlike conventional financial institutions, and there is little recourse if something goes wrong.

the second largest crypto hack in history, with over $600 million in Ethereum currency recently hit gaming-focused blockchain platform Ronin Network. Initial investigations show the hack went unnoticed for a week, and it is believed the hacker accessed the funds via hacked private keys.

This 2022 hack is even bigger than the legendary one Mt. Gox Cryptocurrency Exchange Hack which led to the company’s bankruptcy and serious demands for regulation from the industry. While regulation is underway, it is still in its infancy. This month, Fabio Panetta, a member of the ECB’s executive board, called the digital currency rush “the new Wild West.”

Although CBDCs are different cryptocurrencies, governments will need to ensure funds are secure and regulated when developing a national digital currency. It is also important that the public have access to digital currency education to ensure that a new national CBDC will be universally welcomed by the public. The issue of security needs to be resolved to give people the confidence to use this purely digital currency alongside their conventional fiat funds.

Besides, virtually all European countries have an aging population. Seniors and other less financially savvy demographics sometimes struggle to embrace new technologies. The digital euro, like any other central bank digital currency, should be inclusive, easy to use, and secure.

Biometrics is inclusive and easy to use

Biometric technology can be leveraged to support these prerequisites. Used in conjunction with “cold wallet” crypto storage (in simple terms, it is external, non-internet-connected currency storage), biometric sensor technology can provide high levels of privacy and security by linking the card to the owner via his fingerprint. Biometric fingerprint sensors have long been used in smartphones and are now used in payment cards by banks – including BNP Paribas and Sweden Seesawalso for crypto companies. Therefore, the technology is in place to provide the same levels of security for a digital currency.

A CBDC wallet, via a biometric smart card, could act like a bank account with built-in security, giving millions of previously unbanked or underbanked people instant access to finance and digital services.

The need for privacy

In particular, the ECB consultation highlighted that privacy was seen as the most important feature of a digital euro, both by citizens and professionals. Considering previous data leaks in the cryptocurrency space, this is understandable. But it could also prevent the public from realizing the full potential of a digital payment solution.

The committee found that faced with a specific choice between a privacy-focused offline digital euro or an online euro with innovative features and additional services, respondents will generally opt for a privacy-focused offline solution. This points to a clear need for a stronger, privacy-focused CBDC solution and education to help consumers get the most out of the digital euro.

When enrolling in a biometric wallet, the owner’s fingerprint image is immediately transformed into an abstract biometric template. This is then matched and stored in the secure element of the EMV chip. The owner’s biometric data never leaves the wallet and cannot be subject to a data breach.

A digital currency future

There is no doubt that digital currencies will be in our future. In this rapidly changing environment, where regulation is finally starting to catch up, the introduction of a digital CBDC euro could be faster than we think.

Fortunately, proven biometric technology is now available to turn this major transition to digital currency into a secure, inclusive and user-friendly process. The public’s vision of a “single payment solution” may soon be realized by the ECB. The findings of the 2023 survey could help definitively tame the “Wild West” of payments.

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