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Token or Account Based CBDC?

Anthony Culligan, Chief Engineer


A debate has arisen among those interested in Central Bank Digital Currency. The topic is whether CBDC should be tokenised or account based. Token enthusiasts attribute some characteristic to their position which implies that it is materially different from account based systems. Crucially, it is implied that the technology is special and different. This note explores that point of view.

For a technologist this question is a bit strange. Within a ledger there are transactions and balances. In some DLT solutions there is a running balance (which is the sum result of the transactions) and in others there are just transactions which can be consumed (the UTXO model). In either case, there is a data store which records a number against a public key and a process for changing that number.

Tokens are magic?

So, what is meant when pundits talk about ‘token’ based CBDC? This is probably best articulated in ‘CONSENSYS WHITE PAPER Central banks and the future of digital money’ which states;

Another important design decision is whether the system should be token based or account-based.

In a token-based system, the CBDC is created as a token with a specific denomination. The transfer of a token from one party to another does not require reconciling two databases, but is rather the near-immediate transfer of ownership, very much like handing over banknotes from one person to another.

In an account-based system, the central bank would hold accounts for users of the CBDC, …. In this approach, central banks would have to hold accounts for all users of the currency, meaning exponentially more accounts to manage.

We recommend a tokenised model on several grounds. …. Second, it would free the central banks from the duties of largescale account keeping and reconciliation, as well as the attendant reputational risks should things go wrong or service quality be poor.

Let’s look at that. This whole rationale struck me as suspect – not least because Consensys uses Ethereum as its technology which maintains accounts.

In Ethereum, the state is made up of objects called “accounts”, with each account having a 20-byte address and state transitions being direct transfers of value and information between accounts. An Ethereum account contains four fields:

The nonce, a counter used to make sure each transaction can only be processed once
The account’s current ether balance
The account’s contract code, if present
The account’s storage (empty by default)

From the Ethereum White Paper

In fact, the definition of the ‘token’ from Consensys appears to be mumbo-jumbo. All currencies have a unit size (a penny or a cent for example) in which they can be transferred – so this cannot define a token vs an account. Second, account systems do not, a priori, have ‘two databases’ which need to be co-ordinated. Third, the immediacy of update is a matter of how your software is built – there is no explanation of why a ‘token’ would be more immediate than any other system .

Equally the definition of ‘account’ does nothing to throw light on how it might differ from a ‘token’. It simply says that a CBDC system must keep balances for lots of users – this is true if lots of users are participating in a CBDC system and is, again, a matter of technology.

The final paragraph is perhaps the most confusing. How could this vaguely defined difference between accounts and tokens absolve the central bank of reputational risk?

Bearing all

The answer is perhaps alluded to in the final sentence of the second para – ‘much like handing over banknotes from one person to another”.

The act of handing a note from one person to another and ownership changing in with physical possession is a feature of a ‘bearer instrument’. That is a very well-known concept in financial services. Notes and coins are bearer instruments and until recently there were a plethora of bearer bonds. The holder of a bearer bond could turn up with a physical certificate and claim coupons or event he face value of the bond upon maturity. In fact, the word ‘coupon’ comes from the tear off strips that were used to claim bond interest payments.

So can a digital currency be a bearer instrument. By definition no – it is not a physical thing. It can, however, have similar characteristics. The main one being that some benefit is given to a person by virtue of (and only by virtue of) their being able to irrevocably pass control of something to another person. In particular, they need not prove their identity or have any third party vouch for the goodness of their claim.

Those characteristics are, however, a matter of law not technology. The public/private key tech which drives DTL is a mechanism that can allow an anonymous person to assert against a ledger but whether that assertion has an irrevocable legal effect is determined by thousands of pages of legislation, case law and even international treaties.


Boiled down, tokenised CBDC or tokenised securities could be defined instruments where ownership does not need to be recorded against any legal person or entity and is entirely denoted by the ability of a person to perform some action – such as producing a digital signature. That’s it.

In fact, tokenisation is not very well defined and is really a bit of jargon. Let’s not pretend that it is some magic technology – that simply gets in the way of the proper debate around whether or not society wants to tie identity to financial holdings and transactions. SETL’s CBDC framework addresses this directly by allowing the central banks to permit public keys without associated identities but to limit their usage in accordance with policy and law.

Have a Look at SETL’s CBDC framework and further insights here
SETL Solutions- CBDC
SETL Insights- The Case For CBDC
SETL Insights- SETL cast Ep. 1: Interview With Christian Noyer
Consensys White Paper

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