The Bank of Canada published a paper on Central Bank Retail Digital Currencies (CBDCs) that explores storage type, or what techies call state organization. Rather than a centralized versus blockchain comparison, he grouped the possibilities into five archetypes.

Five archetypes of CBDC:

• centralized
• Leaderless: eg. permissionless block chain
• Partitioned macro: eg. enterprise blockchain
• Micro partitions: eg. openCBDC and TODAQ from MIT
• Direct: Cash-like P2P with tamper-resistant hardware

It then proceeds to score each archetype according to design requirements, such as privacy, compliance, and scalability. However, it acknowledges that detailed design could materially affect these ratings.

How digital money is represented

While the state model is critical, so is the way money is represented. In the world of permissionless blockchains, Ethereum and Bitcoin are quite different. Ethereum uses an account-based model that is easy to follow. Bitcoin uses the Unspent Transaction Output (UTXO) model.

For UTXO, if you start with $100 and spend $20, the recipient ends up with a $20 token and you end up with an $80 token. As you spend money, your token will get smaller and smaller. That can also affect platform overhead because there are a lot of small tokens over time. It becomes like paying the grocery bill with coins.

In addition to the account-based model and UTXO, the document also mentions the advantages of an invoice-based model.

Finally, he points out that the account-based model might be easier to program.

The Bank of Canada was one of the central banks that launched a deep investigation of CBDC long before Facebook announced Libra. He regularly publishes articles and also collaborates with universities. In March, he announced that he was conducting research with MIT.

One of the biggest issues for Canada is the potential threat to monetary sovereignty if the United States launches a digital dollar or stablecoins become widely used for payment.