V God: Central bank digital currency can interact with cryptocurrency

Ethereum co-founder Vitalik Buterin has proposed a way to trade central bank digital currencies using cryptocurrencies.

Buterin raised the question on Twitter whether central bank digital currency transactions can be cryptographically proven? In other words, can mathematical methods be used to prove that a transaction of central bank digital currency has been completed? If so, this will bring some interesting possibilities.

He said, “If I send you N central bank digital currencies, can I generate cryptographic proof that can be verified on Ethereum? Basically, if you can prove to the Ethereum blockchain that a transaction was made within the central bank digital currency system, you can use it to build an automated smart contract DEX.”

Buterin explained that this process will “make it easier for people to transact between fiat and cryptocurrencies.”

Here’s how it works, he said. Let’s say two people agree to pay each other, but use different payment methods. One person wants to trade some Ethereum for a central bank digital currency, like China’s upcoming digital yuan. The question is, how can they be sure the other party is willing to pay? They can create a smart contract that is designed so that when one party completes the transaction, the other party automatically executes it.

To achieve this, the Ethereum blockchain needs to be able to know whether the central bank digital currency has been transferred, because it runs on a completely different centralized system. So as Buterin said, this approach will work if the central bank digital currency transactions can be cryptographically verified.

Image source: pixabay

AuthorLiang CHE

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