Delft’s digital euro: the sustainable alternative to Bitcoin
The price of bitcoin has been breaking records since the start of the year. The rising value has attracted many new investors, because nobody wants to miss the boat. The Delft Blockchain Lab recently presented a sustainable and hybrid form of crypto currency: the Delft digital euro.
It is estimated that around 700,000 Dutch people now own bitcoin or other cryptocurrencies. It seems the ideal piggybank, especially when savings accounts are yielding so little. But what are these cryptos anyway? How do they work, what can you do with them and is the future of money digital?
Cryptocurrencies originated in 2008, when Satoshi Nakamoto – the pseudonym of a hitherto unknown person or group – invented Bitcoin. The starting point was a digital currency that was not issued or managed by a central bank, but by a network of users.
While banks use a traditional central database to transfer money from one account to another, Bitcoin uses its own decentralised database: the blockchain.
A blockchain is a transaction chain of data shared within a network of individual and independent parties. Transactions stored in a blockchain cannot be deleted or modified and this allows secure transactions to take place between various parties without the need for a central party such as a bank.
“You can see blockchain as the accounting system for all bitcoin transactions,” explains crypto fanatic and aerospace engineering student Marco. “That accounting system consists of a list that is made up of blocks of information. Whenever a bitcoin is added or traded, all computers will register this new information.” Such a transaction line is created every ten minutes and is only officially entered into the system (blockchain) when all computers have registered the transaction as such.
“This makes it the most secure and transparent payment system in the world. Every transaction is checked by hundreds of thousands of computers and is publicly available, so anyone can see it.”
This method is very safe, but not very sustainable. Transactions are recorded in the blockchain by means of hugely complex calculations. One transaction costs the equivalent of over 600 kWh of electricity. Mining Bitcoin costs about 121.36 terawatt hours per year, which is more electricity than all of Argentina (121 terawatt hours) and the Netherlands (108.8 terawatt hours) consume, Cambridge University calculated. And even higher consumption is possible, because the greater the value of bitcoin, the more complex the calculations and the more computing power and energy is required.
The amount is sent from the one phone to the other without the use of Wi-Fi or other wireless networks.
Delft’s digital euro
In early April, the Delft Blockchain Lab presented a more sustainable and hybrid form of cryptocurrency: the Delft digital euro.This blockchain currency is linked to the IBAN system and is open source, non-profit and transparent.
How does it work? Customers can download an app on their smartphone to activate the digital euro. They log in to their bank and transfer money from their bank account to their phone. The seller enters the appropriate amount and a QR code is displayed on the screen. The customer scans the code, checks the amount and clicks on send. The amount is then sent from the one phone to the other without the use of Wi-Fi or other wireless networks (this is guaranteed by the underlying blockchain technology). The credit on the phone is transferred back to the customer’s bank account.
It may sound like a standard digital payment, but there are plenty of differences. The transactions take place offline between two phones, so the technology is not vulnerable to digital failures. And while retailers have to pay for standard transactions, using the digital euro is free. Transactions are only stored on the users’ phones and do not appear on bank statements, so they are just as anonymous as using cash.
With cash now virtually out of circulation (partly due to corona), cryptos are an increasingly interesting alternative. However there are also considerable risks, because it is currently impossible to guarantee the value of cryptos without the backing of a commercial or central bank. The solution might be a centrally issued digital currency, because then the bank would guarantee the value. The European Central Bank and De Nederlandsche Bank (DNB) are currently investigating the possibilities of such a currency – a digital euro.
Blockchain researcher Dr Johan Pouwelse (Electrical Engineering, Mathematics & Computer Science) underlines the import of a reliable public payment facility. Debit card payments may be the domain of the banks, but Pouwelse sees how the tech giants Apple, Google and Facebook are racing to develop digital payment technologies. Pouwelse emphasises that money transfers form part of an essential infrastructure that belongs in public hands. DNB brought the physical euro into circulation, and he believes it is also the appropriate body to introduce the digital euro.
Software that is free of copyright restrictions and so can be used and modified by anyone. An example of open source is the Linux operating system.
Cryp·to·cur·ren·cy; plural: cryptocurrencies: legal tender currency in the form of digital money that can be used to pay for products and services on the internet whereby encrypted information is used to conduct the transaction; virtual money.