A. Summary

The intent of this article is to highlight a weakness of the European Central Bank’s digital euro at the intersection with a network based on distributed ledger technology (DLT) which comes into effect when it is made usable for payments in the DLT environment. It is a technology-neutral problem and therefore should be considered irrespectively of the realization of a digital euro. The result, and thus the inherent risk of the ECB and central banks losing control of a legal tender, puts users, especially consumers, at risk. DLT networks, however, are not the evil part in this story; they merely represent an exceptional challenge for a digital euro. Close attention must be paid to how money is exchanged for cryptographic counterparts and how the guarantee of a digital euro to be safe, secure^[1] and stable in value can be ensured in the future. However, the knowledge gained can also turn weakness into strength.

B. Focus and terminologies

Payment instruments are not limited to legal tender or so-called crypto currencies: The terms are manifold and the understanding differs strongly. As a result, this article does not address the (im)possibilities in distinguishing payment tokens, security tokens and utility tokens and what this means for legislators, supervisors and users. The focus is on payment instruments in general that can be specified in a contract on which the payment obligation is based. Due to freedom of contract, the parties can agree on a payment with a digital object of value that is not legal tender but accepted as an equivalent. In addition, the contracting parties may agree on the use of computer programs in order to automate payments. Some call them programmable payments and endorse DLT networks for their implementation. The term DLT network is undefined and describes more than a distributed data collection or a distributed super computer. DLT network also describes a special kind of collaboration among network participants, because the counterpart in a DLT-based transaction^[2] does not always have to be human. In this article, it makes no difference whether a DLT network is accessible to anyone or to a specific group of users. It always characterizes a self-contained, artificially created environment.

C. Making the invisible visible

To promote a better understanding of the weakness to be portrayed, it is necessary to start at the beginning and learn how the weakness of a digital euro appeared.

I. The digital euro, a central bank digital currency (CBDC)

The ECB shows highly respectable caution with regard to fundamental changes to the European way of payment while responding to the digital payment trend of using so-called crypto currencies like bitcoin^[3]. According to the ECB’s explicit words, a digital euro will not be a digital asset or stablecoin.^[4] Before starting a digital euro project in the middle of 2021, the ECB explores concepts, possible designs, and discusses findings with stakeholders and international partners.

On 21 December 2020 the Working Group Programmable Euro, initiated by the German Federal Bank and Federal Ministry of Finance,^[5] issued a report pointing out a rise in need for programmable payments involving DLT and smart contracts^[6]. Due to the report, DLT is increasingly being used in the German economy as a new basic technology for digital transformation.^[7] The described need for programmable payment solutions and digital central bank money (i.e. a digital euro) is being summarized as follows:

“However, the greatest functional benefit in processing programmable payments is attributed to tokenized commercial bank money and digital central bank money. The pending development of both forms of payment offers sufficient leeway to fully take into account the need to implement programmable payments. Both solutions are particularly suitable due to the expected credibility of their issuers and the application within a binding legal framework as a processing solution for programmable payments. In addition, technological interoperability and robust IT-Infrastructures are necessary prerequisites for universal acceptance of the payment solution. The stability of the value of money is also emphasized as a fundamental prerequisite for the acceptance of new payment solutions.”^[8]

Though part of official press releases the report has to be read in a careful manner: It is not an official report or statement by the German Federal Bank or Federal Ministry of Finance.

When describing the idea(l) of the digital euro the ECB points out that it is^[9] a safe form of money,^[10] a secure and non-volatile, guaranteed stable store of value.^[11] In addition, a digital euro is supposed to avoid risks of unregulated payment solutions and preempt uptake of foreign digital currencies.^[12]

Though having a different intention, the report of the German working group is an important document which opens the door to the dark side of the moon. DLT-based programmed payments appear in many forms, most of them related to so-called decentralized financial applications (DeFi).^[13] Regardless of the global context, these applications allow the properties of a digital euro to be circumvented and therefore impose risks and rise of unregulated payment solutions the ECB wishes to avoid.^[14]

II. Programmable payments and the digital euro according to the working group

The working group started with the idea to examine programmable money.^[15] According to the working group programmable money needs immense technical progress.^[16] So it focuses on programmable payments and gives a rather granular picture of how it envisions the (programmable) DLT business^[17]. In the following only the relevant information will be pointed out and explained.

1. What is a programmable payment?

The working group defines a programmable payment as a transfer of money with pre-determined conditions that take effect at a later time, i.e. the transaction.^[18] In short, it means a computer program used to execute payments (based on a contract).

2. What is the role of a digital euro in this context?

The working group enumerates “use cases” based on DLT, for example, cross-border and 24/7 machine-to-machine-payments, automated (contract) settlement payments and pay-per-use-payments.^[19] In this context, the digital central bank money, i.e. the digital euro, would allow for fail-safe payments which were also stable in value.^[20]

The working group describes a problem of “conventional payments” not being able to be integrated into smart contracts and therefore not into programmable payment processes.^[21] Therefore, so-called DLT-based business transactions could not be carried out synchronously and automatically using conventional payment transactions.^[22] DLT-based businesses depend on digital payment instruments like so-called crypto tokens and stablecoins. However, due to their high volatilities, lack of interoperability and legal issues, the working group deems these payment instruments to be practically unsuitable.^[23] In contrast to that, the working group sees tokenized commercial bank money^[24] and digital central bank money to be fully applicable from a payments perspective, assuming a legally secure, technically reliable solution that is interoperable with DLT applications.^[25]

3. What remains unclear

The report describes many ideas but little facts. Important aspects are not being discussed. For example, the working group recognizes that DLT networks are different but at the same time have something important in common: They are based on an own, individual set of rules, i.e. the protocol. At this point, however, the working group stops and the report becomes arbitrary. Digital central bank money is not native to any DLT-network. It has to be made part of it first in order to be used within the network. The working group does not give any depth to the problem but instead expresses hope for “interoperability”, most of all “between DLT-protocols (sic!)^[26]”^[27], but not between a digital euro system and a DLT system.

Due to circumventing the described problem the working group wrongly assumes a digital euro as digital central bank money to be “fully applicable from a payments perspective, a legally secure, technically reliable solution that is interoperable with DLT applications”^[28].

III.  Interoperability

Interoperability describes the ability to exchange information.^[29] Just like the term “autonomous”, “interoperability” says nothing about the degree of interchangeability.

1. Different kinds of interoperability

The working group suggests a single, overall standard^[30] especially for DLT networks which does not appear realistic in the world outside a laboratory, which is driven by independence, competition, and competitive progress. The motivation to implement “programmable payments” is no strong argument for connecting different chains or one chain to other systems.^[31] Programmable payments are possible – if the “right” chain is used.

The problem that, for example, bitcoin cannot be used in the Ethereum network has been solved already. It is getting “wrapped”, i.e. transformed into Ethereum-compatible information by creating a network-owned^[32] representative. It becomes a so-called altcoin^[33]. Ether remains the so-called native token, Ethereum’s so-called coin^[34]. However, wrapping is just another way to exchange coins, in addition to the exchange services offered by crypto exchanges such as Coinbase for example. In contrast to these, wrapping service providers are rarely known by name or supervised and thus emphasize the decentralized nature of such services independent of name and will. Therefore, these wrapping services are also referred to as decentralized exchanges.

Just like bitcoin, the digital euro will have to be made compatible with the respective DLT network in which it is supposed to be used. It is foreign to any DLT network and therefore has to be exchanged for a compatible payment instrument first, either using a centralized exchanging option or a decentralized one. Consequently, DLT-businesses have no special need for digital central bank money. It is the digital central bank money that needs special treatment.

2. Co-coin digital euro?

Since DLT protocols can be changed^[35] it is not impossible to make a digital euro a native part of an existing DLT network and thus of DLT businesses.^[36] The question is, however, if this change is attractive. DLT networks and so-called decentralized finance (DeFi) systems based on DLT networks thrive on financial attractiveness that lies primarily in exchange and the high volatility of exchangeables. A strictly defined digital euro that can be redesigned is more attractive than its full integration. Finally, the full integration of a digital euro means that the DLT network hands over control to a central(ized) bank. This marks the end of popular DLT networks like Ethereum which are built on independency.

However, there is no reason to herald the end of DLT networks, as the use of (digital) central bank money in the form of a network-owned representative is possible. So why should the situation be changed. The market would filter out the counterfeit offers. So they say.

3. Enforcement difficulties

Given the immense losses associated with DLT businesses over the past two years and the fight against money laundering and terrorist financing, voluntarism will not be sufficient to ensure ECB and central bank control over a digital euro that is part of a DLT network.

The question is, how control of the digital euro can be enforced in a decentralized network if full integration is too much to ask for. Who would be the (first) responsible person to address? Who would be the (first) responsible person subject to enforcement, fines and damages? In view of the numerous complex issues, it seems more likely that the EU will end up banning and closing DLT networks that allow the ECB and central banks to curtail their control over the digital euro.

However, it is highly questionable whether this is a good idea. Decentralized businesses have been successful to date without disclosing who or where a responsible party is located, and will continue to do so in the future. These will only motivate European developers and businessmen to escape the grasp of the EU and member state authorities. As a result of a ban, the DLT business will grow, but the EU’s innovation potential and influence will shrink.

IV. Wrapping the digital euro

Knowing that full integration of a digital euro is unattractive and that a ban on DLT networks is also unpleasant, the question remains as to how a digital euro could be made network-compatible (1.) and how the inherent risk of loss of control over the digital euro might materialize (2.). Last but not least, there might be a solution (3.).

1. Creating a DLT network-compatible digital euro

Ethereum is the most popular DLT network. To use DLT services, users must obtain ether or other altcoins accepted by the respective DLT service provider. Usually, they acquire them via one of the well-known crypto exchanges. Depending on the accepted means of payment, they can also exchange euro directly. Furthermore, it is possible to gain ether through mining and exchange it for the coveted payment instrument using a crypto exchange, either centralized or decentralized. An example of decentralized exchanges are so-called wrapping services.

a)  What is wrapping?

Wrapping has risen with the rise of DeFi applications and the risen need for easily interchangeable digital assets^[37]. It describes a process of creating a digital asset which represents another digital asset.^[38] The represented digital asset may but does not have to be a network-owned digital asset. The main idea is to preserve the value of the represented digital asset in the new design and environment.^[39] That is why representatives, the Wrapped Digital Assets, are capitalized.

Since the represented digital asset may be outside Ethereum it is a way of integrating something external to the network, i.e. creating interoperability between Ethereum and other DLT networks as well as the rest of the outside world. It is a low level of information exchange, but it is an exchange of information.

Since there is no universally accepted definition, a wrapped token can be understood as a stablecoin. A stablecoin is commonly deemed to be pegged to the value of something else, which can be fiat money, commodities like gold or even highly volatile digital units of payment. But stablecoins are more than just mere representatives: They are not comparable to cash – they are controlled by their creators.^[40] That means a transaction of stablecoins can very well be prevented and thus controlled by a third party.^[41]

b)  Existing wrapping options

It is useful to concentrate on two examples of wrapping services:^[42] Firstly, a service to wrap self-owned payment instruments. Secondly, a service to purchase Wrapped Payment Instruments.

aa)  wbtc.network

A so-called Wrapped Bitcoin (WBTC) is an Ethereum-standard ERC20 token,^[43] i.e. an altcoin, which is intended to make bitcoin compatible with the network Ethereum:^[44]

“WBTC brings greater liquidity to the Ethereum ecosystem including decentralized exchanges (DEXs) and financial applications. Today, the majority of trading volume takes place on centralized exchanges with Bitcoin. WBTC changes that, bringing Bitcoin’s liquidity to DEXs and making it possible to use Bitcoin for token trades.”^[45]

“WBTC standardizes Bitcoin to the ERC20 format, creating smart contracts for Bitcoin. This makes it easier to write smart contracts that integrate Bitcoin transfers.”^[46]

WBTC is supposed to be backed 1:1 with bitcoin.^[47]

WBTC is not based on a single smart contract controlled by one single person, but on a collection of smart contracts called a DAO (distributed autonomous organization).^[48] This Wrapped Tokens DAO is “governed” by a so-called multi-signature smart contract, i.e. a computer program which is controlled by the parties to the WBTC consortium.^[49] So-called merchants are designated parties who initiate the creation and destruction (burning) of newly wrapped tokens.^[50] Custodians are the executives in the WBTC-sphere; they perform the processes of creation and burning.^[51]

In order to receive WBTC a user has to request tokens from a merchant. The merchant performs a KYC/AML procedure and verifies the user’s identity.^[52] After completion, the user and the merchant execute a swap, i.e. the transfer of bitcoin from the user to the merchant, and WBTC from the merchant to the user.^[53]

According to the Whitepaper, Merchants are Kyber and Republic Protocol.^[54] Each of them holds a key and therefore controls creation and destruction of WBTC.^[55] Both parties’ websites do not include an imprint or information on data protection. No information could be obtained to understand what happens with the personally identifiable information of users obtained in the named KYC/AML processes. It is documented though that KyberSwap, originally Kyber Network International Limited located in Malta, left the EU for the British Virgin Islands in response to the Fifth Anti Money Laundering Directive.^[56]

bb)  Uniswap

Uniswap is a decentralized exchange offering wrapped (native) tokens without the necessity of holding or exchanging the (native) token to be wrapped. The user simply chooses an offered Ethereum-token that is supposed to be backed by another (native) token. Due to the fact that offered tokens are not subject to an assessment the visitor of Uniswap is greeted with the following words which the user has to confirm to have understood:

“Anyone can create and name any ERC20 token on Ethereum, including creating fake versions of existing tokens and tokens that claim to represent projects that do not have a token. Similar to Etherscan, this site automatically tracks analytics for all ERC20 tokens independent of token integrity. Please do your own research before interacting with any ERC20 token.”^[57]

The process of obtaining Wrapped Bitcoin (WBTC), Wrapped Ether (WETH) or Wrapped Zcash (WZEC) is made easy.^[58] To date, no KYC/AML verification process has to be passed. Whether the user takes note of the warning during the easy process of acquiring tokens is highly questionable. Out of five visits it was displayed only once. Again, the website does neither include information about the person(s) in charge nor on data protection.

c)  What does this mean for a digital euro?

Uniswap’s warning indicates that anything can be claimed to be represented in a DLT network token. In addition, it is commonly unknown who has control over the represented subject. In general, the controller is located outside of the EU. Last but not least it is unknown who controls the controller(s) in order to prevent the abuse of power.

A digital euro can easily be wrapped in order to be used in a DLT network. It can (wrongly) be claimed to have been wrapped in a DLT network token, too. The one who creates and controls the wrapping smart contract(s) is the one who defines control over the digital euro and controls the Wrapped Digital Euro. On a regular basis, this person will not or hardly be obtainable.

2. Loss of control

The ECB describes the digital euro as a safe form of money,^[59] a secure^[60] and non-volatile, guaranteed stable store of value.^[61] It is supposed to avoid risks of unregulated payment solutions and preempt uptake of foreign digital currencies.^[62] The ECB does not want the digital euro to be a digital asset or stablecoin.^[63] However, when a digital euro is integrated into a DLT network by wrapping, it becomes a digital asset and stablecoin, perhaps a foreign digital currency, and can easily be shaped into unregulated payment solutions.

a)  The user’s loss of control

For the user of a stablecoin, the risk of loss increases because handling “tokenized money” is more difficult and more error-prone. If the private key gets lost, the “tokenized money” is lost. If a bank customer forgets or loses a password or PIN code, the money is not lost – the bank is able to renew the customer’s access. Even a lost bank note will be found someday.

A stablecoin depends on its creator and therefore the user and the stablecoin’s use depend on the creator. Unlike a bank, which needs a good reason to restrict the use of money in a customer’s bank account, a stablecoin creator can restrict the use of or invalidate stablecoins by all users as if it were flipping the light switch.^[64]

While entrusting money to a financial institution is generally based on a contract with someone registered and the control of the known contract partner is limited by law as well as controlled by competent authorities, wrapping a digital euro will very likely mean entrusting money to someone probably unregistered, unknown and unlimited in power. Even if this person is known, e.g. if the creator is the contract partner, it is still a loss of control due to the risk of (exploitable) programming errors which the ECB and central banks wish to exclude.

b)  The ECB’s and central banks’ loss of control

With a wrapped digital euro, the ECB and central banks lose control to someone else. Vincent describes the change of control in the case of WBTC as follows:

“Wrapped tokens is a multi-institutional asset tokenization framework that adheres to the centralized approach. However, instead of relying entirely on a single institution, it relies on a consortium of institutions performing different roles in the network.”^[65]

Wrapped tokens therefore mean a shift in control. And thus granting a possibility of altering its characteristics the ECB wishes to guarantee.

3. The USDC – a role model for the digital euro?

If it is technically feasible to create a wrapped, i.e. “tokenized” euro, the question arises why the loss of control cannot be framed as an intentional shift in control. The USDC might be an answer to that question.

The USDC is an Ethereum-based ERC-20 token, which is intended to form the “programmable US-Dollar” for global internet transactions on the Circle platform.^[66] In short, it is a wrapped (digital) US-Dollar. The USDC (wrapping) software was developed by Centre^[67], a cooperation between the crypto exchange Coinbase and the FinTech company Circle (Internet Financial Limited). Accordingly, the USDC is tradable on Coinbase, but also on other crypto exchanges.

At the request of authorities, Centre undertook a so-called blacklisting on 16 June 2020, in accordance with the Centre Consortium USDC Network Blacklisting Policy^[68]. In this blacklisting, an Ethereum address is “blocked” and any transaction in connection with USDC is prevented. Specifically, a corresponding function of the USDC smart contract (“Function: blacklist(address investor)”) is triggered by means of a transaction on the part of Centre naming the address to be blocked.

Even without delving into the legal issues, the case shows that it is possible to wrap a digital euro in such a way that the ECB and central banks retain control; EU legislators would have to decide who may exercise control in their favor. And beyond.

However, it is doubtful whether this type of control is acceptable to users. A EURC (euro coin) would mean that

• the controller of the EURC could render it unusable at any time;
• the controller of the EURC is an attractive target for attack;
• the user of the EURC can never be sure of having the money in times of need.

In any case, the ECB should take a closer look at the USDC case and include it in its considerations.^[69] A(nother) digital euro would not be needed at all.

V. DLT networks do not need a digital euro

Despite the fact that a digital euro would lose its important features once it is made compatible with a DLT network, businesses built on DLT still and will rely on the conversion of an external payment instrument. Creating a digital euro that has to be redigitized (“tokenized”) makes no sense. Banning DLT networks because it is inherent in them not to be controlled by a central institution makes no sense. However, a well-designed, supervised wrapped euro would not require years of development and would allow DLT-based programmable payments at low cost.

D. A digital euro should help reduce interfaces, not create more

The idea of a digital euro is modern and should therefore also follow a modern approach: Reduce interfaces and gateways for attackers. Creating a new system that has to be made compatible with all the different payment software solutions in the world creates a lot of interfaces and opportunities for attack. Given the rapid pace of technological progress, it even raises the question of how long such a system can exist without becoming obsolete. The acceptance of a dwindling currency system that is constantly under attack is certainly questionable. Perhaps the best solution is simply to allow numerous possibilities for digitizing the euro, as has been the case so far – in a regulated, supervised manner.

V

V

^[1]  “Safe” describes an intrinsic safety, meaning the protection from accidents or mishaps. “Secure” refers to an extrinsic oriented protection from threats like cyber-attacks.

^[2]  A transaction in the context of a DLT network might just be a change to the database, cf. Otto, Ri-nova 2018, 14 (17 et seq.).

^[3]  Which is not a currency, but a digital asset with high volatility that can be used, for example, for payments by contractual agreement. In this article, network names are capitalized, native tokens are lowercase. Only special tokens are capitalized to highlight a problem to be solved.

^[4]  https://www.ecb.europa.eu/pub/pdf/other/Report_on_a_digital_euro~4d7268b458.en.pdf, Annex 2 (the document was visited on 29 December 2020).

^[5]  https://www.bundesfinanzministerium.de/Content/DE/Pressemitteilungen/Finanzpolitik/2020/12/2020-12-21-zunehmender-bedarf-an-programmierbaren-zahlungen.html linking the report “Geld in programmierbaren Anwendungen” dated 21 December 2020, https://www.bundesbank.de/resource/blob/855080/941264701eb3f1a67ef6815831c9e40a/mL/2020-12-21-programmierbare-zahlung-anlage-data.pdf (the websites were visited on 29 December 2020). It is not an official statement but a collection of opinions of German banks and companies.

^[6]  Computer programs running on a distributed computer, which, in case of the so-called super computer Ethereum is a distributed ledger technology.

^[7]  Which is highly questionable, especially due to the lack of examples. It can be assumed that the authors refer to results of internal tests in a laboratory-like situation.

^[8]  https://www.bundesbank.de/de/presse/pressenotizen/zunehmender-bedarf-an-programmierbaren-zahlungen-855056 (translated; the website was visited on 29 December 2020).

^[9]  Please keep in mind that this is always a description of the idea of the ideal digital euro, which may not become reality in the near future or at all.

^[10]  https://www.ecb.europa.eu/euro/html/digitaleuro-report.en.html (the website was visited on 29 December 2020).

^[11]  https://www.ecb.europa.eu/pub/pdf/other/Report_on_a_digital_euro~4d7268b458.en.pdf (Annex 2, p. 50 et seq.; the website was visited on 29 December 2020).

^[12]  https://www.ecb.europa.eu/euro/html/digitaleuro-report.en.html (the website was visited on 29 December 2020).

^[13] A chart can be viewed here: Yakubowski, Was 2020 a ‘DeFi year,’ and what is expected from the sector in 2021? Experts answer, 23 December 2020, https://cointelegraph.com/news/was-2020-a-defi-year-and-what-is-expected-from-the-sector-in-2021-experts-answer (the website was visited on 29 December 2020).

^[14]  https://www.ecb.europa.eu/euro/html/digitaleuro-report.en.html (the website was visited on 29 December 2020).

^[15]  “Geld in programmierbaren Anwendungen” dated 21 December 2020, https://www.bundesbank.de/resource/blob/855080/941264701eb3f1a67ef6815831c9e40a/mL/2020-12-21-programmierbare-zahlung-anlage-data.pdf, p. 4 (the document was visited on 29 December 2020).

^[16]  “Geld in programmierbaren Anwendungen” dated 21 December 2020, https://www.bundesbank.de/resource/blob/855080/941264701eb3f1a67ef6815831c9e40a/mL/2020-12-21-programmierbare-zahlung-anlage-data.pdf, p. 4 (the document was visited on 29 December 2020).

^[17]  “Geld in programmierbaren Anwendungen” dated 21 December 2020, https://www.bundesbank.de/resource/blob/855080/941264701eb3f1a67ef6815831c9e40a/mL/2020-12-21-programmierbare-zahlung-anlage-data.pdf, p. 5 et seq. (the document was visited on 29 December 2020).

^[18]  “Geld in programmierbaren Anwendungen” dated 21 December 2020, https://www.bundesbank.de/resource/blob/855080/941264701eb3f1a67ef6815831c9e40a/mL/2020-12-21-programmierbare-zahlung-anlage-data.pdf, p. 4 (the document was visited on 29 December 2020).

^[19]  “Geld in programmierbaren Anwendungen” dated 21 December 2020, https://www.bundesbank.de/resource/blob/855080/941264701eb3f1a67ef6815831c9e40a/mL/2020-12-21-programmierbare-zahlung-anlage-data.pdf, p. 5 et seq. (the document was visited on 29 December 2020).

^[20]  “Geld in programmierbaren Anwendungen” dated 21 December 2020, https://www.bundesbank.de/resource/blob/855080/941264701eb3f1a67ef6815831c9e40a/mL/2020-12-21-programmierbare-zahlung-anlage-data.pdf, p. 8 et seq. (the document was visited on 29 December 2020).

^[21]  “Geld in programmierbaren Anwendungen” dated 21 December 2020, https://www.bundesbank.de/resource/blob/855080/941264701eb3f1a67ef6815831c9e40a/mL/2020-12-21-programmierbare-zahlung-anlage-data.pdf, p. 9 et seq. (the document was visited on 29 December 2020).

^[22]  “Geld in programmierbaren Anwendungen” dated 21 December 2020, https://www.bundesbank.de/resource/blob/855080/941264701eb3f1a67ef6815831c9e40a/mL/2020-12-21-programmierbare-zahlung-anlage-data.pdf, p. 9 et seq. (the document was visited on 29 December 2020).

^[23]  “Geld in programmierbaren Anwendungen” dated 21 December 2020, https://www.bundesbank.de/resource/blob/855080/941264701eb3f1a67ef6815831c9e40a/mL/2020-12-21-programmierbare-zahlung-anlage-data.pdf, p. 9 et seq. (the document was visited on 29 December 2020).

^[24]  The working group describes tokenized commercial bank money as the alternative to the account money on banks’ servers, see “Geld in programmierbaren Anwendungen” dated 21 December 2020, https://www.bundesbank.de/resource/blob/855080/941264701eb3f1a67ef6815831c9e40a/mL/2020-12-21-programmierbare-zahlung-anlage-data.pdf, p. 8 (the document was visited on 29 December 2020).

^[25]  “Geld in programmierbaren Anwendungen” dated 21 December 2020, https://www.bundesbank.de/resource/blob/855080/941264701eb3f1a67ef6815831c9e40a/mL/2020-12-21-programmierbare-zahlung-anlage-data.pdf, p. 9 et seq. (the website was visited on 29 December 2020).

^[26]  Protocols cannot interoperate. The systems based on protocols can be interoperable, i.e. compatible.

^[27]  “Geld in programmierbaren Anwendungen” dated 21 December 2020, https://www.bundesbank.de/resource/blob/855080/941264701eb3f1a67ef6815831c9e40a/mL/2020-12-21-programmierbare-zahlung-anlage-data.pdf, p. 14 (the document was visited on 29 December 2020).

^[28]  “Geld in programmierbaren Anwendungen” dated 21 December 2020, https://www.bundesbank.de/resource/blob/855080/941264701eb3f1a67ef6815831c9e40a/mL/2020-12-21-programmierbare-zahlung-anlage-data.pdf, p. 9, 11 (the document was visited on 29 December 2020).

^[29]  Solem, Overview of Wrapped Tokens, CRYPTOR TRUST, 18 August 2020, https://cryptortrust.com/2020/08/18/overview-of-wrapped-tokens/ (the website was visited on 29 December 2020).

^[30]  “Geld in programmierbaren Anwendungen” dated 21 December 2020, https://www.bundesbank.de/resource/blob/855080/941264701eb3f1a67ef6815831c9e40a/mL/2020-12-21-programmierbare-zahlung-anlage-data.pdf, p. 12, 14 (the document was visited on 29 December 2020).

^[31]  On the 5. Defcon 2019 in Osaka, Japan, smaller cryptocurrency projects expressed interest in accessing Ethereum’s DeFi ecosystem which does not seem to be mutual. However, there are discussions about connecting Ethereum and other chains in order to solve issues involving scalability and operation speed, i.e. distributing the load. For more information see Cant, Privacy Coin Zcash Community to Develop Wrapped Token for Ethereum, 13 October 2019, https://cointelegraph.com/news/privacy-coin-zcash-community-to-develop-wrapped-token-for-ethereum (the website was visited on 29 December 2020).

^[32]  Please do not understand “own” in a legal context: When speaking of own in this technical context, it simply means that the information is a part of this system and cannot be extracted without losing its meaning or value.

^[33]  Altcoins are alternative tokens to the network’s native token, i.e. the coin.

^[34]  In Bitcoin it is bitcoin (BTC).

^[35]  Yes, they can be changed – if the participants of the network agree with the majority defined in the protocol.

^[36]  On the 5th Defcon 2019 in Osaka, Japan, smaller cryptocurrency projects expressed interest in accessing Ethereum’s DeFi ecosystem which does not seem to be mutual. However, there are discussions about connecting Ethereum and other chains in order to solve issues involving scalability and operation speed, i.e. distributing the load. For more information see Cant, Privacy Coin Zcash Community to Develop Wrapped Token for Ethereum, 13 October 2019, https://cointelegraph.com/news/privacy-coin-zcash-community-to-develop-wrapped-token-for-ethereum (the website was visited on 29 December 2020).

^[37]  Which at this point is intended to be the generic term for all digital objects to which value is attributed.

^[38]  Solem, Overview of Wrapped Tokens, CRYPTOR TRUST, 18 August 2020, https://cryptortrust.com/2020/08/18/overview-of-wrapped-tokens/ (the website was visited on 29 December 2020).

^[39]  Solem, Overview of Wrapped Tokens, CRYPTOR TRUST, 18 August 2020, https://cryptortrust.com/2020/08/18/overview-of-wrapped-tokens/ (the website was visited on 29 December 2020).

^[40]  Goodman, Ri 2019, 79 ff.; Otto, Stablecoins: Gefahren des programmierbaren Geldes, 9 July 2020, https://cot.legal/stablecoins-gefahren-des-programmierbaren-geldes (the website was visited on 29 December 2020).

^[41]  Otto, Stablecoins: Gefahren des programmierbaren Geldes, 9 July 2020, https://cot.legal/stablecoins-gefahren-des-programmierbaren-geldes (the website was visited on 29 December 2020).

^[42]  Wrapping services offered by banks, i.e. tokenized commercial bank money or other products subject to regulators’ permit, are not relevant here.

^[43]  https://wbtc.network/ (the website was visited on 29 December 2020).

^[44]  https://wbtc.network/ (the website was visited on 29 December 2020).

^[45]  https://wbtc.network/ (the website was visited on 29 December 2020).

^[46]  https://wbtc.network/ (the website was visited on 29 December 2020).

^[47]  https://wbtc.network/ (the website was visited on 29 December 2020).

^[48]  https://wbtc.network/ (the website was visited on 29 December 2020).

^[49]  https://wbtc.network/ (the website was visited on 29 December 2020).

^[50]  https://wbtc.network/ (the website was visited on 29 December 2020).

^[51]  https://wbtc.network/ (the website was visited on 29 December 2020).

^[52] https://wbtc.network/ (the website was visited on 29 December 2020).

^[53]  https://wbtc.network/ (the website was visited on 29 December 2020).

^[54]  https://wbtc.network/, Whitepaper, p. 15 (the website was visited on 29 December 2020).

^[55]  https://wbtc.network/, Whitepaper, p. 15 (the website was visited on 29 December 2020).

^[56]  https://www.theblockcrypto.com/post/53352/another-crypto-firm-moving-out-of-the-eu-in-response-to-5amld-this-time-non-custodial-exchange-kyberswap

^[57]  https://info.uniswap.org (the website was visited on 29 December 2020).

^[58]  Mason, How to purchase Wrapped Zchash on Uniswap, 22 October 2022, https://medium.com/wrapped/how-to-purchase-wrapped-zcash-on-uniswap-e30e02712db6.

^[59]  https://www.ecb.europa.eu/euro/html/digitaleuro-report.en.html (the website was visited on 29 December 2020).

^[60]  “Safe” describes an intrinsic safety, meaning the protection from accidents or mishaps. “Secure” refers to an extrinsic oriented protection from threats like cyber-attacks (the website was visited on 29 December 2020).

^[61]  https://www.ecb.europa.eu/pub/pdf/other/Report_on_a_digital_euro~4d7268b458.en.pdf (Annex 2, p. 50 f.; the website was visited on 29 December 2020).

^[62]  https://www.ecb.europa.eu/euro/html/digitaleuro-report.en.html (the website was visited on 29 December 2020).

^[63]  https://www.ecb.europa.eu/pub/pdf/other/Report_on_a_digital_euro~4d7268b458.en.pdf, Annex 2 (the website was visited on 29 December 2020).

^[64]  Goodman, Ri 2019, 79 ff.

^[65]  Vincent, Unterstanding Wrapped Bitcoin and the Wrapped Tokens Framework, 22 June 2019, https://medium.com/nerd-for-tech/understanding-wrapped-bitcoin-and-the-wrapped-tokens-framework-6ed45e52acdb (the website was visited on 29 December 2020).

^[66]  https://circle.com/en/ (the website was visited on 29 December 2020).

^[67]  https://www.centre.io/ (the website was visited on 29 December 2020).

^[68]  https://www.centre.io/pdfs/governance/Centre_Blacklisting_Policy_20200512.pdf (the website was visited on 29 December 2020).

^[69]  Please find more details here: Otto, Stablecoins: Gefahren des programmierbaren Geldes, 9 July 2020, https://cot.legal/stablecoins-gefahren-des-programmierbaren-geldes (the website was visited on 29 December 2020).