The European Central Bank (ECB) is designing the digital euro to be one of the most private electronic payment options available, with plans for a rollout by 2025. Despite strong privacy assurances, concerns persist about whether the ECB can truly prevent government surveillance. While the digital euro aims to minimize data collection through techniques like pseudonymization, skeptics worry that future changes in laws or technology could compromise privacy. As the ECB strives to balance transparency with security, the digital euro’s launch promises to be a pivotal moment in the evolution of digital payments.

One of the most private electronic payment methods will be the digital euro, according to a European Union data protection officer.

The European Central Bank (ECB) published a study on October 2, 2020, outlining the foundation for the digital euro, the central bank digital currency (CBDC).

Since October 2021, the digital euro has been the subject of inquiry, with bankers and ECB officials formulating theories regarding its potential use and design.

The digital euro went into preparation mode in November 2023, and by the end of 2024’s fiscal year, legislation might potentially be adopted reports Cointelegraph.

By November 2025, digital euro use cases might be put into practice if the ECB follows its strategy. The Governing Council will next determine whether to proceed to the next stage of preparations, where it will specify its scope and duration, so the rollout may take some time.

The digital euro is still in development, but privacy issues are already causing resistance.

In a blog post published on June 13, Maarten Daman, an ECB data protection officer, asserted that the bank is “designing the digital euro to be the most private electronic payment option.”

To accomplish this, the ECB needs to provide guarantees to win over EU residents’ confidence to utilize the CBDC. Daman emphasized that the ECB has no secret motive when he discussed the matter with Cointelegraph:

“We are committed to being as transparent as possible regarding the privacy aspects of a digital euro as our analysis progresses. We have nothing to hide.”

Addressing the Privacy Concerns of the Digital Euro

The majority of Europeans are still unaware of the digital euro. 59% of respondents to a June 6 survey by the Deutsche Bundesbank, Germany’s central bank, said they did not know of it.

The story of the digital euro that most Europeans hear is one that the ECB has a great chance to shape.

According to the Bundesbank poll, three-quarters of participants regarded privacy when using the digital euro as extremely important or important, despite the fact that the digital euro is widely unknown.

The European Central Bank (ECB) declared in a 2024 status report on the digital euro that it would not gather client financial data. It will, nevertheless, collect certain information to abide by Anti-Money Laundering (AML) laws. According to Daman, significant work is being done to develop a digital euro that uses the least amount of data possible:

“As a principle, the Eurosystem’s starting point is to process only as little as possible personal data required to fulfill our objectives.”

According to the ECB report, it is looking into technological solutions, such as pseudonymization, to prevent the Eurosystem, the issuer and provider of payment infrastructure, from being able to directly associate transactions with particular people.

Pseudonymization improves privacy by concealing personal identities by substituting fake identification characteristics with real ones. Through this procedure, authorities can examine data without being able to identify specific persons, preserving the data’s value for transaction processing while safeguarding privacy.

Pseudonymization is in line with the approach of R3’s chief technology officer, Richard Brown, who focuses on CBDCs and enterprise blockchain.

According to Brown’s statement to Cointelegraph, a classy way to address the privacy issues with the digital euro would be for private companies that are independent of the government to handle the personally identifiable data of their clients’ direct commercial connections. “Identifiable data would be kept away from the ledger, which is the core record of financial transactions,” he declared.

According to Brown, private companies would serve as wallet providers, with the European Central Bank (ECB) just providing the digital euro’s basic ledger and infrastructure. In particular, if the privacy guarantees were supported by the power of law, this infrastructure “would ease privacy concerns,” he stated.

The Payment Service Providers in charge of managing citizens’ data would have a segregated data stream with the Eurosystem, making it impossible to directly identify end users or link any of the data it processes to a specific end user. This is how the ECB pseudonymization strategy works.

Does the Digital Euro Provide Government Access?

Because certain information must be provided to authorities to comply with AML requirements, concerns about governments having a backdoor into customer data persist.

Daman admitted the worry but stated that several safeguards would stop this from occurring:

“The Eurosystem would not be technically able to directly identify digital euro users, track their payments, nor legally allowed to do so, nor would we have a commercial incentive as a public institution.”

The ECB “will adhere to the legislation of the digital euro,” according to Daman. We are expressly forbidden under the proposal from using personal data processing to identify users directly.

The European Data Protection Supervisor, an impartial body with the authority to perform audits and inspections and monitor other EU institutions, would be in charge of the ECB.

If the law is broken, the European Court of Justice (ECJ) will step in. The ECJ has the authority to revoke an EU act if it is considered to have violated EU treaties or fundamental rights, including the right to privacy.

There is a long history of the ECJ upholding private rights. The Safe Harbor (2015) and Privacy Shield (2020) arrangements, which allowed for data transfers between the EU and the US, were declared invalid by the court because they were deemed to have insufficient protection against US government surveillance of the data of EU individuals.

Digital Euro Critics Remain Distrustful of the Initiative

The public’s confidence in the issuer is a prerequisite for fiat currencies like the dollar and euro. According to Daman, privacy and trust are crucial considerations for the digital euro:

“High levels of privacy and trust will be key aspects that distinguish a digital euro from other currently available payment solutions.”

In an interview with Cointelegraph, Richard Turrin, the author of Cashless: China’s Digital Currency Revolution and an influential figure on CBDCs, stated that he thinks the European Central Bank’s (ECB) privacy messaging is accurate and that the digital euro will be more private than current card-based payments.

He did, however, note that “we’ll all need to take a look to ensure their claims of privacy, but they’re off to a good start” once the ECB releases the finished design.

There is still skepticism despite the ECB’s assurances, which are supported by strong legislation and oversight bodies.

Independent German lawmaker Joana Cotar, who spearheaded the Bitcoin im Bundestag awareness campaign, told Cointelegraph that history has shown multiple instances in which governments have frequently used new technologies against their citizens.

Cotar continued: “Risks are succinctly dismissed concerning legal frameworks that are supposed to rule out any abuse.” “The ECB does not mention that such laws can be rewritten or circumvented,” the speaker observed.

“I believe that blind faith in the ECB is reckless. No matter what political promises have been made.”

According to Josh Swihart, CEO of Electric Coin Company, the company behind Zcash, the privacy coin, issuers can “take action such as freezing funds or blacklisting addresses and having visibility into balances and transactions” because of the CBDC’s design. Complete financial privacy isn’t guaranteed under such a framework, he told Cointelegraph:

“Privacy is not binary; it’s a gradient.”

Swihart emphasized how governments may compel people to use their currency, which is under their control, and restrict alternatives, like cryptocurrency that protect privacy.

The European Central Bank (ECB) has always maintained that the digital euro is not meant to replace other payment methods and that the adoption of the CBDC would not be required by law. Swihart feels that “even if the control is not exercised abusively today, it’s a slippery slope,” notwithstanding the ECB’s best efforts.

He emphasized that “power doesn’t typically cede power” and that “once an individual gives up their rights to governments, it typically leads to greater invasions of freedom rather than less.”

Last year, GreatGameInternational reported that the Reserve Bank of Zimbabwe had announced that Zimbabwe would launch a gold-backed digital currency, abandoning the US dollar.