Antiusurpation and the road to disenshittification
THIS WEEKEND (November 8-10), I'll be in TUCSON, AZ: I'm the GUEST OF HONOR at the TUSCON SCIENCE FICTION CONVENTION.
Nineties kids had a good reason to be excited about the internet's promise of disintermediation: the gatekeepers who controlled our access to culture, politics, and opportunity were crooked as hell, and besides, they sucked.
For a second there, we really did get a lot of disintermediation, which created a big, weird, diverse pluralistic space for all kinds of voices, ideas, identities, hobbies, businesses and movements. Lots of these were either deeply objectionable or really stupid, or both, but there was also so much cool stuff on the old, good internet.
Then, after about ten seconds of sheer joy, we got all-new gatekeepers, who were at least as bad, and even more powerful, than the old ones. The net became Tom Eastman's "Five giant websites, each filled with screenshots of the other four." Culture, politics, finance, news, and especially power have been gathered into the hands of unaccountable, greedy, and often cruel intermediaries.
Oh, also, we had an election.
This isn't an election post. I have many thoughts about the election, but they're still these big, unformed blobs of anger, fear and sorrow. Experience teaches me that the only way to get past this is to just let all that bad stuff sit for a while and offgas its most noxious compounds, so that I can handle it safely and figure out what to do with it.
While I wait that out, I'm just getting the job done. Chop wood, carry water. I've got a book to write, Enshittification, for Farar, Straus, Giroux's MCD Books, and it's very nearly done:
Compartmentalizing my anxieties and plowing that energy into productive work isn't necessarily the healthiest coping strategy, but it's not the worst, either. It's how I wrote nine books during the covid lockdowns.
And sometimes, when you're not staring directly at something, you get past the tunnel vision that makes it impossible to see its edges, fracture lines, and weak points.
So I'm working on the book. It's a book about platforms, because enshittification is a phenomenon that is most visible and toxic on platforms. Platforms are intermediaries, who connect buyers and sellers, creators and audiences, workers and employers, politicians and voters, activists and crowds, as well as families, communities, and would-be romantic partners.
There's a reason we keep reinventing these intermediaries: they're useful. Like, it's technically possible for a writer to also be their own editor, printer, distributor, promoter and sales-force:
But without middlemen, those are the only writers we'll get. The set of all writers who have something to say that I want to read is much larger than the set of all writers who are capable of running their own publishing operation.
The problem isn't middlemen: the problem is powerful middlemen. When an intermediary gets powerful enough to usurp the relationship between the parties on either side of the transaction, everything turns to shit:
A dating service that faces pressure from competition, regulation, interoperability and a committed workforce will try as hard as it can to help you find Your Person. A dating service that buys up all its competitors, cows its workforce, captures its regulators and harnesses IP law to block interoperators will redesign its service so that you keep paying forever, and never find love:
Multiply this a millionfold, in every sector of our complex, high-tech world where we necessarily rely on skilled intermediaries to handle technical aspects of our lives that we can't â or shouldn't â manage ourselves. That world is beholden to predators who screw us and screw us and screw us, jacking up our rents:
(Maybe this is a post about the election after all?)
The difference between a helpmeet and a parasite is power. If we want to enjoy the benefits of intermediaries without the risks, we need policies that keep middlemen weak. That's the opposite of the system we have now.
Take interoperability and IP law. Interoperability (basically, plugging new things into existing things) is a really powerful check against powerful middlemen. If you rely on an ad-exchange to fund your newsgathering and they start ripping you off, then an interoperable system that lets you use a different exchange will not only end the rip off â it'll make it less likely to happen in the first place because the ad-tech platform will be afraid of losing your business:
Interoperability means that when Amazon rips off audiobook authors to the tune of $100m, those authors can pull their books from Amazon and sell them elsewhere and know that their listeners can move their libraries over to a different app:
But interoperability has been in retreat for 40 years, as IP law has expanded to criminalize otherwise normal activities, so that middlemen can use IP rights to protect themselves from their end-users and business customers:
https://locusmag.com/2020/09/cory-doctorow-ip/
That's what I mean when I say that "IP" is "any law that lets a business reach beyond its own walls and control the actions of its customers, competitors and critics."
For example, there's a pernicious law 1998 US law that I write about all the time, Section 1201 of the Digital Millennium Copyright Act, the "anticircumvention law." This is a law that felonizes tampering with copyright locks, even if you are the creator of the undelying work.
So Amazon â the owner of the monopoly audiobook platform Audible â puts a mandatory copyright lock around every audiobook they sell. I, as an author who writes, finances and narrates the audiobook, can't provide you, my customer, with a tool to remove that lock. If I do so, I face criminal sanctions: a five year prison sentence and a $500,000 fine for a first offense:
In other words: if I let you take my own copyrighted work out of Amazon's app, I commit a felony, with penalties that are far stiffer than the penalties you would face if you were to simply pirate that audiobook. The penalties for you shoplifting the audiobook on CD at a truck-stop are lower than the penalties the author and publisher of the book would face if they simply gave you a tool to de-Amazon the file. Indeed, even if you hijacked the truck that delivered the CDs, you'd probably be looking at a shorter sentence.
This is a law that is purpose-built to encourage intermediaries to usurp the relationship between buyers and sellers, creators and audiences. It's a charter for parasitism and predation.
But as bad as that is, there's another aspect of DMCA 1201 that's even worse: the exemptions process.
You might have read recently about the Copyright Office "freeing the McFlurry" by granting a DMCA 1201 exemption for companies that want to reverse-engineer the error-codes from McDonald's finicky, unreliable frozen custard machines:
Under DMCA 1201, the Copyright Office hears petitions for these exemptions every three years. If they judge that anticircumvention law is interfering with some legitimate activity, the statute empowers them to grant an exemption.
When the DMCA passed in 1998 (and when the US Trade Rep pressured other world governments into passing nearly identical laws in the decades that followed), this exemptions process was billed as a "pressure valve" that would prevent abuses of anticircumvention law.
But this was a cynical trick. The way the law is structured, the Copyright Office can only grant "use" exemptions, but not "tools" exemptions. So if you are granted the right to move Audible audiobooks into a third-party app, you are personally required to figure out how to do that. You have to dump the machine code of the Audible app, decompile it, scan it for vulnerabilities, and bootstrap your own jailbreaking program to take Audible wrapper off the file.
No one is allowed to help you with this. You aren't allowed to discuss any of this publicly, or share a tool that you make with anyone else. Doing any of this is a potential felony.
In other words, DMCA 1201 gives intermediaries power over you, but bans you from asking an intermediary to help you escape another abusive middleman.
This is the exact opposite of how intermediary law should work. We should have rules that ban intermediaries from exercising undue power over the parties they serve, and we should have rules empowering intermediaries to erode the advantage of powerful intermediaries.
The fact that the Copyright Office grants you an exemption to anticircumvention law means nothing unless you can delegate that right to an intermediary who can exercise it on your behalf.
A world without publishing intermediaries is one in which the only writers who thrive are the ones capable of being publishers, too, and that's a tiny fraction of all the writers with something to say.
A world without interoperability intermediaries is one in which the only platform users who thrive are also skilled reverse-engineering ninja hackers â and that's an infinitesimal fraction of the platform users who would benefit from interoperabilty.
Let this be your north star in evaluating platform regulation proposals. Platform regulation should weaken intermediaries' powers over their users, and strengthen their power over other middlemen.
Put in this light, it's easy to see why the ill-informed calls to abolish Section 230 of the Communications Decency Act (which makes platform users, not platforms, responsible for most unlawful speech) are so misguided:
If we require platforms to surveil all user speech and block anything that might violate any law, we give the largest, most powerful platforms a permanent advantage over smaller, better platforms, run by co-ops, hobbyists, nonprofits local governments, and startups. The big platforms have the capital to rig up massive, automated surveillance and censorship systems, and the only alternatives that can spring up have to be just as big and powerful as the Big Tech platforms we're so desperate to escape:
This is especially grave given the current political current, where fascist politicians are threatening platforms with brutal punishments for failing to censor disfavored political views.
Anyone who tells you that "it's only censorship when the government does it" is badly confused. It's only a First Amendment violation when the government does it, sure â but censorship has always relied on intermediaries. From the Inquisition to the Comics Code, government censors were only able to do their jobs because powerful middlemen, fearing state punishments, blocked anything that might cross the line, censoring far beyond the material actually prohibited by the law:
We live in a world of powerful, corrupt middlemen. From payments to real-estate, from job-search to romance, there's a legion of parasites masquerading as helpmeets, burying their greedy mouthparts into our tender flesh:
But intermediaries aren't the problem. You shouldn't have to stand up your own payment processor, or learn the ins and outs of real-estate law, or start your own single's bar. The problem is power, not intermediation.
As we set out to build a new, good internet (with a lot less help from the US government than seemed likely as recently as last week), let's remember that lesson: the point isn't disintermediation, it's weak intermediation.
If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:
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Enshittification describes how platforms go bad, which is also how the internet goes bad, because the internet is made of platforms, which is weird, because platforms are intermediaries and we were promised that the internet would disintermediate the world:
The internet did disintermediate a hell of a lot of intermediaries â that is, "middlemen" â but then it created a bunch more of these middlemen, who coalesced into a handful of gatekeepers, or as the EU calls them "VLOPs" (Very Large Online Platforms, the most EU acronym ever).
Which raises two questions: first, why did so many of us end up flocking to these intermediaries' sites, and how did those sites end up with so much power?
To answer the first question, I want you to consider one of my favorite authors: Crad Kilodney (RIP):
https://archive.org/details/thecradkilodneypapers
When I was growing up, Crad was a fixture on the streets of Toronto. All through the day and late into the evening, winter or summer, Crad would stand on the street with a sign around his neck ("Very famous Canadian author, buy my books, $2" or sometimes just "Margaret Atwood, buy my books, $2"). He wrote these deeply weird, often very funny short stories, which he edited, typeset, printed, bound and sold himself, one at a time, to people who approached him on the street.
I had a lot of conversations with Crad â as an aspiring writer, I was endlessly fascinated by him and his books. He was funny, acerbic â and sneaky. Crad wore a wire: he kept a hidden tape recorder rolling in his coat and he secretly recorded conversations with people like me, and then released a series of home-duplicated tapes of the weirdest and funniest ones:
But â and this is the crucial part â there are writers out there I want to hear from who couldn't do what Crad did. Maybe they can write books, but not edit them. Or edit them, but not typeset them. Or typeset, but not print. Or print, but not spend the rest of their lives standing on a street-corner with a "PUTRID SCUM" sign around their neck.
Which is fine. That's why we have intermediaries. I like booksellers (I was one!). I like publishers. I like distributors. I like their salesforce, who go forth and convince the booksellers of the world to stock books like mine. I have ten million things I want to do before I die, and I'm already 52, and being a sales-rep for a publisher isn't on my bucket list. I am so thankful that someone else wants to do this for me.
That's why we have intermediaries, and why disintermediation always leads to some degree of re-intermediation. There's a lot of explicit and implicit knowledge and specialized skill required to connect buyers and sellers, creators and audiences, and other sides of two-sided markets. Some producers can do some of this stuff for themselves, and a very few â like Crad â can do it all, but most of us need some help, somewhere along the way. In the excellent 2022 book Direct, Kathryn Judge lays out a clear case for all the good that middlemen can do:
So why were we all so anxious for disintermediation back in the late 1990s? Here's a hint: it wasn't because we hated intermediaries â it was because we hated powerful intermediaries.
The point of an intermediary is to serve as a conduit between producers and consumers, buyers and sellers, audiences and creators. When an intermediary gains power over the audience â say, by locking them inside a walled garden â and then uses that lock-in to screw producers and appropriate an ever larger share of the value going between them, that's when intermediaries become a problem.
The problem isn't that someone will handle ticketing for your gig. The problem is that Ticketmaster has locked down all the ticketing, and the venues, and the promotions, and it uses that power to gouge fans and rip off artists:
The problem isn't that there's a well-made website that lets you shop for goods sold by many small merchants and producers. It's that Amazon has cornered this market, takes $0.51 out of every dollar you spend there, and clones and destroys any small merchant who succeeds on the platform:
The problem isn't that there's a website where you can stream most of the music ever recorded. It's that Spotify colludes with the Big Three labels to rip off artists and sneaks crap you don't want to hear into your stream in order to collect payola:
The problem isn't that there's a website where you can buy any audiobook you want. It's that Amazon's Audible locks every book to its platform forever and steals hundreds of millions of dollars from creators:
The problem, in other words, isn't intermediation â it's power. The thing that distinguishes a useful intermediary from an enshittified bully is power. Intermediaries gain power when our governments stop enforcing competition law. This lets intermediaries buy each other up and corner markets. Once they've formed cozy cartels, they can capture their regulators and commit rampant labor, privacy and consumer violations with impunity. That capture also lets them harness governments to punish smaller players that want to free workers, creators, audiences and customers from walled gardens. It also hands them a whip-hand over their workers, so that any worker who refuses to aid in these nefarious plans can be easily fired:
A world with intermediaries is a better world. As much as I love Crad Kilodney's books, I wouldn't want to live in a world where the only books on my shelves came from people prepared to stand on a street-corner wearing a "FOUL PUS FROM DEAD DOGS" sign.
The problem isn't intermediaries â it's powerful intermediaries. That's why the world's surging antitrust movement is so exciting: by reinstating competition law, we can keep intermediaries small and comparatively weak, so that creators and audiences, drivers and riders, sellers and buyers, and other groups seeking to connect will not find themselves made subservient to middlemen.
If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:
This week on my podcast, I read âTwiddler,â a recent Medium column in which I delve more deeply into enshittification, and how it is a pathology of digital platforms, distinct from the rent-seeking of the analog world that preceded it:
https://doctorow.medium.com/twiddler-1b5c9690cce6
If youâd like an essay-formatted version of this post to read or share, hereâs a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:
Enshittification, youâll recall, is the lifecycle of the online platform: first, the platform allocates surpluses to end-users; then, once users are locked in, those surpluses are taken away and given to business-customers. Once the advertisers, publishers, sellers, creators and performers are locked in, the surplus is clawed away from them and taken by the platforms.
Facebook is the poster-child for enshittification. When FB welcomed the general public in 2006, it sold itself as the privacy-respecting alternative to Myspace, promising users it would never harvest their data. The FB feed consisted of the posts that the people youâd followedâââthe people you cared aboutâââpublished.
FB experienced explosive growth, thanks to two factors: ânetwork effectsâ (every new user was a draw for other users who wanted to converse with them), and âswitching costsâ (it was practically impossible to convince all the people you wanted to hear from to leave FB, much less agree on what platform to go to next). In other words, every new user who joined FB both attracted more users, and made it harder for those users to leave.
FB attained end-user lockin and was now able to transfer usersâ surpluses to business customers. First, it started aggressively spying on users and offered precision targeting at rock-bottom prices to advertisers. Second, it offered media companies âalgorithmicâ boosting into the feeds of users who hadnât asked to see their posts.
Media companies that posted brief excerpts to FB, along with links to their sites on the real internet were rewarded with floods of traffic, as their posts were jammed into the eyeballs of millions of FB users who never asked to see them. Media companies and advertisers went all-in for FB, integrating FB surveillance beacons in their presence on the real internet, hiring social media specialists whoâd do Platform Kremlinology in order to advise them on the best way to please The Algorithm.
Once those business customersâââcreators, media companies, advertisersâââwere locked into FB, the company harvested their surplus, too. On the ad side, FB raised rates and decreased expensive anti-fraud measures, meaning that advertisers had to pay more, even as an increasing proportion of their ads were either never served, or never seen.
With media companies and creators, FB not only stopped jamming their content in front of people who never asked to see it, they actively suppressed the spread of business usersâ posts even to their own subscribers. FB required media companies to transition from excerpts to fulltext feeds, and downranked or simply blocked posts that linked back to a business userâs own site, be it a newspaperâs web presence or a creatorâs crowdfunding service. Business users who wanted to reach the people who had explicitly directed FB to incorporate their media in usersâ feeds had to pay to âboostâ their materials.
This is the (nearly) complete enshittification cycle: having harvested the surplus from users and business customers, FB is now (badly) attempting to surf the line where nearly all the value in the service lands in its shareholdersâ pockets, with just enough surplus left behind to keep end-users and business-users locked in (see also: Twitter).
There have been lots of other abusive âplatformâ businesses in the pastâââfamously, 19th century railroads and their robber-baron owners were so obnoxiously abusive that they spawned the trustbusting movement, the Sherman Act, and modern competition law. Did the rail barons do enshittification, too?
Well, yesâââand no. I have no doubt that robber barons would have engaged in zuckerbergian shenanigans if they could haveâââbut here we run up against the stubborn inertness of atoms and the slippery liveliness of bits. Changing a railroad schedule to make direct connections with cities where you want to destroy a rival ferry business (or hell, laying track to those cities) is a slow proposition. Changing the content recommendation system at Facebook is something you do with a few mouse-clicks.
Which brings me to the thesis of âTwiddlerâ: enshittification doesnât arise from the special genius or the unique wickedness of tech baronsââârather, itâs the product of the ability to twiddle. Our discourse has focused (rightly) on the extent to which platforms are âinstrumentedââââthat is, the degree to which they spy on and analyze their usersâ conduct.
But the discussion of what the platforms do with that dataâââthe ways they âreactâ to itâââhas echoed the platformsâ own boasts of transcendental âbehavior modificationâ prowess (c.f. âSurveillance Capitalismâ) while giving short shrift to the extremely mundane, straightforward ways that the ability to change the business-logic of a platform lets it allocate and withdraw surpluses from different kinds of users to get them on the hook, reel them in, and then skin and devour them.
The Twiddler thesis, in other words, is a counter to the narrative of Maria Farrellâs Prodigal Tech Bros, who claim that they were once evil sorcerers, but, having seen the error of their ways, vow to be good sorcerers from now on, forswearing âhacking our dopamine loopsâ like vampires swearing off blood:
People who repeat the claims of Prodigal Tech Bros are engaging in criti-hype, Lee Vinselâs term for criticism that repeats techâs own mystical narratives of their own superhuman prowess, rather than grappling with the mundanity of doing old conjurerâs tricks very quickly, with computers:
Thatâs what twiddling isâââdoing the same things that grocery store monopolists and rail monopolists and music label monopolists have always done, but very quickly, with computers. Whether itâs Amazon rooking sellers and authors, or Apple and Googleâs App Stores rooking app creators, or Tiktok and Youtube rooking performers, or Uber rooking drivers, the underlying pattern of surplus-harvesting is the same, and so is the method. They do the same thing as their predecessors, but very quickly, with computers.
A grocer who wants to price-gouge on eggs needs to dispatch an army of low-waged employees with pricing guns. AmazonFresh does the same thing in an eyeblink, by typing a new number into a field on a web-form and clicking submit. As is so often the case when a magic trick is laid bare, the actual mechanic is very, very boring: the way to make a nickel appear to vanish is to spend hundreds of hours practicing before a mirror while you shift so it is clenched between your fingers, and protrudes from behind your hand (sorry, spoiler alert).
The trick can be baffling and marvellous when you see it, but once you know how itâs done, itâs pretty obviousâââthe difference is that most sleight-of-hand artists donât think theyâre sorcerers, while plenty of tech bros believe their own press.
Thereâs a profound irony in twiddlingâs role in enshittification: early internet scholarship rightly hailed the power of twiddling for internet users. Theorists like Aram Sinnreich described this as configurabilityâââthe ability of end-users (aided by tinkerers, small businesses, and co-ops) to modify the services they used to suit their own needs:
https://www.jstor.org/stable/j.ctt5vk8c2
Arguably the most successful configurability story is ad-blocking, which Doc Searls calls âthe biggest boycott in human history.â Billions of end-users of the web have twiddled their browsers so that they arenât tracked by ad-tech and donât see ads:
Configurability was at the heart of early hopes for mass disintermediation, because audiences and performers (or sellers and producers) could go direct to one another, assembling a customized, un-capturable conduit composed of an a-la-carte selection of payment processors, webstores, mail and web hosts, etc. Whenever one of these utilities tried to capture that relationship and harvest an unfair share of the surplus, both ends of the transaction could foil them by blocking, reverse-engineering, modding, or mashing them up, wriggling off the hook before it could set its barbs.
Butâââas we can all seeâââa funny thing happened on the way to the 21st century. The platforms seized the internet, turning it into âfive giant websites, each filled with screenshots of the other fourâ:
1. They were able to buy or merge with every major competitor, and where that failed them, they were able to use predatory pricing to drive competitors out of the market:
2. They were able to twiddle their services, setting them a-bristle with surveillance beacons and digital actuators that could rearrange the virtual furniture every time some knob-jockey touched their dial:
https://doctorow.medium.com/twiddler-1b5c9690cce6
3. They were able to hoard the twiddling, using laws like the DMCA, CFAA, noncompetes, trade secrecy, and other âIPâ laws to control the conduct of their competitors, critics and customers:
https://locusmag.com/2020/09/cory-doctorow-ip/
That last point is very important: itâs not just that big corporations twiddle us to deathâââitâs that they have made it illegal for us to twiddle back. Adblocking is possible on the open web, but to ad-block your Iphone, you must first jailbreak it, which is a crime. Yes, Apple will block Facebook from spying on youâââbut even if you opt out of tracking, Apple still spies on you in exactly the same way Facebook did, to power their own ad-targeting business:
This is what Jay Freeman calls âfelony contempt of business-modelââââthe literal criminalization of configuration. When Netflix wants to decide who is and isnât a member of your family, they just twiddle their back-end to block the child that moves back and forth between your home and your exâs, thanks to your joint custody arrangement:
But woe betide the parent who twiddles back to restore their childâs service, by jailbreaking an app or the W3Câs official, in-browser DRM, EMEâââtrafficking in a tool to bypass EME and reconfigure your browser to suit your needs, rather than Netflixâs, is a felony punishable by a five-year prison sentence and a $500k fine, under Section 1201 of the DMCA:
This is the supreme irony of twiddling: Big Tech companies love to twiddle you, but if you touch your own knob, they call it a crime. Just as Big Tech firms turned âfree softwareâ into âopen sourceâ and then took all the software freedom for themselves, configurability is now the exclusive purview of corporationsâââthose transhuman, immortal colony paperclip maximizers that treat humans as inconvenient gut-flora:
2. Anti-twiddling laws for businesses: A federal privacy law with a private right of action, labor protections, and other rules that take knobs away from tech platforms:
Monopolists and their handmaidensâââwitting and unwittingâââwant you to believe that their dominance is inevitable (shades of Thatcherâs âthere is no alternativeâ), because the great forces of history, the technical characteristics of digital technology, and the sorcerous mind-control of dopamine-hackers.
But the reality is much more mundane. Digital freedom was never a mirage. Indeed, it is a prize of enormous valueâââthatâs why the platforms are so intent on hoarding it all for themselves.
Hereâs this weekâs podcast episode:
https://craphound.com/news/2023/02/27/twiddler/
And hereâs a direct link to download the MP3 (hosting courtesy of the Internet Archive ; theyâll host your media for free, forever):
TK
Hereâs the direct feed to subscribe to my podcast:
http://feeds.feedburner.com/doctorow_podcast
And hereâs the original âTwiddlerâ article on Medium:
https://doctorow.medium.com/twiddler-1b5c9690cce6
Image:
Stephen Drake (modified)
https://commons.wikimedia.org/wiki/File:Analog_Test_Array_modular_synth_by_sduck409.jpg
CC BY 2.0
https://creativecommons.org/licenses/by/2.0/deed.en
This Thu (Mar 2) Iâll be in Brussels for Antitrust, Regulation and the Political Economy, along with a whoâs-who of European and US trustbusters. Itâs livestreamed, and both in-person and virtual attendance are free. On Fri (Mar 3), Iâll be in Graz for the Elevate Festival.
[Image ID: A mandala made from a knob and button-covered control panel.]
The CBDC Deadlock: Why 2026 is the Make-or-Break Year for Digital Sovereignty
The global financial theater is currently witnessing a high-stakes pivot from theoretical design to the cold reality of deployment. As of early 2026, over 130 countries representing 98% of global GDP are no longer asking 'if' they should digitize their sovereign tender, but 'how' they can do so without collapsing the commercial banking tiers that have stood for centuries. The illusion of a seamless transition has evaporated, replaced by a complex web of technical bottlenecks and sociopolitical resistance.,Central Bank Digital Currencies (CBDCs) were promised as the ultimate remedy for the inefficiencies of cross-border settlements and the decline of physical cash. However, as the European Central Bank (ECB) concludes its preparatory phase and prepares for mid-2027 pilot transactions, a fundamental tension has emerged: the 'Privacy-Stability Paradox.' Policymakers are finding that the very features making CBDCs attractiveâanonymity and instant liquidityâare the same ones that threaten anti-money laundering (AML) protocols and bank solvency.
The Disintermediation Trap and the $1.3 Trillion Liquidity Shift
The most immediate threat identified by the IMF in its November 2025 handbook is the risk of massive deposit flight. If a retail CBDC is perceived as a 'risk-free' alternative to commercial bank deposits, especially during periods of market volatility in late 2026, the traditional lending model could face an existential crisis. Industry analysts estimate that even a modest 10% shift of household deposits into CBDC wallets could reduce the lending capacity of Eurozone banks by over âŹ800 billion, forcing institutions to rely on more expensive wholesale funding.
To counter this, the ECB and the Bank of England are investigating 'tiered remuneration' and strict holding limits. Current projections for the 2027 Digital Euro pilot suggest a cap of roughly âŹ3,000 per citizen. Yet, these guardrails introduce a new friction: if the currency is too restricted to protect banks, it fails to provide the utility needed to displace private stablecoins or dominant payment processors like Visa and Mastercard, which currently handle over 70% of European card transactions.
The Privacy Siege: Encoding Anonymity into the Ledger
Public trust remains the steepest mountain to climb. In 2026, civil liberties groups have intensified their scrutiny of 'programmable' money, fearing that CBDCs could become tools for state surveillance. The technical challenge lies in creating a 'zero-knowledge' architecture where the central bank can validate a transaction's legitimacy without seeing the identities of the participants. While the BIS Consultative Group has proposed modular balance-keeping layers, the actual execution remains fraught with latency issues.
The legislative battle in the United States has reached a fever pitch, with the 'Anti-CBDC Surveillance State Act' creating a polarized regulatory environment. Meanwhile, China's e-CNY has integrated into WeChat Pay and Alipay to bolster adoption, but Western democracies are finding that the technical cost of 'privacy-by-design' is staggering. The ECB has earmarked approximately âŹ1.3 billion for internal development costs through 2029, a significant portion of which is dedicated solely to cryptographic hardware and Secure Elements (SE) meant to mimic the anonymity of physical cash.
Interoperability or Fragmentation: The Cross-Border Race
While domestic retail CBDCs grab headlines, the real geopolitical battle is fought in the wholesale arena. Projects like 'mBridge'âa collaboration between China, Thailand, the UAE, and Hong Kongâare already demonstrating that blockchain-based sovereign settlement can bypass the traditional SWIFT network, reducing transaction times from days to seconds. By mid-2026, the success of these corridors has forced Western central banks to accelerate their own interoperability standards to avoid a fragmented global payment map.
The danger is a 'digital iron curtain' where different technological standards (DLT vs. centralized ledgers) prevent seamless value exchange. The 2026 PwC Global Crypto Regulation Report highlights that while 91% of central banks are exploring digital assets, less than 15% have agreed on a unified 'Travel Rule' for digital sovereign identity. Without a synchronized API framework by 2027, the world risks trading the old inefficiency of correspondent banking for a new era of digital silos.
The Offline Frontier: Solving the Last Mile of Digital Cash
One of the most overlooked technical hurdles is the 'offline' requirement. For a CBDC to truly replace cash, it must function during power outages or in regions with poor internet connectivityâa critical need for the 25% of Sub-Saharan African nations planning 2028 launches. In 2026, pilots in India and Brazil (Drex) are testing hardware-based wallets and NFC-enabled cards that store value locally, but these devices introduce significant double-spending risks and physical security vulnerabilities.
Solving this 'last mile' is not just a technical feat but a prerequisite for financial inclusion. If a CBDC requires a high-end smartphone and a constant 5G connection, it risks further marginalizing the 1.4 billion unbanked people it was meant to empower. As we move toward the final quarters of 2026, the focus has shifted from high-level whitepapers to the manufacturing of low-cost, secure hardware tokens, marking the transition of CBDCs from a software experiment to a massive logistics operation.
The trajectory of central bank digital currencies in 2026 suggests that the initial utopian vision of 'programmable prosperity' has been tempered by the gravity of systemic risk. We are no longer in an era of rapid disruption, but rather one of cautious, multi-billion dollar engineering. The success of the upcoming 2027 pilots will depend less on the elegance of the code and more on the ability of central banks to prove that a digital dollar or euro is a public good, not a tool for surveillance or a catalyst for financial instability.,As the digital and physical worlds continue to merge, the CBDC will likely emerge as the bedrock of a new financial architecture, provided that the current hurdles of privacy and bank disintermediation are cleared. The decisions made in the next eighteen months will determine whether the future of money is a decentralized, inclusive frontier or a tightly controlled, fragmented landscape. The ledger is open, but the final entry remains unwritten.
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