# A Digital Currency Architecture for Privacy and Owner-Custodianship
## 4 Analysis
### Decentralization  
There are some important questions to ask about a token-based design, including whether we need the tokens to be issued by the central bank directly, or by other institutions (\"stablecoins\"), or whether the tokens can operate entirely outside the institutional milieu (\"cryptocurrency\"). We note that stablecoins introduce systemic risk. Their design relies upon a peg to some other asset, which can ultimately be undone. Users of the stablecoin, therefore, incur counterparty risk to those who are tasked with maintaining the peg. This counterparty risk implies either that the stablecoin must trade at a discount to the asset to which it is pegged, or that the peg would be underwritten by a government actor, such as a central bank. In the former case, the stablecoin is not so stable. In the latter case, the stablecoin is not really different from fiat currency. Token-based systems, including systems with strong privacy characteristics, can be centralized, relying upon a specific arbiter to handle disputes about the validity of each transaction (possibly with a different arbiter for different transactions), or they can be decentralized, using a distributed ledger to validate each transaction ex ante via a consensus process. For a decentralized design, we consider the question of who the system operators would be. In the case of CBDC, for example, although we assume that the central bank would be responsible for the design and issuance of CBDC tokens, we do not make the same assumption about the responsibility for the operation of a transaction infrastructure or payment system, which historically has generally been operated by private-sector organizations. As mentioned earlier, systems for payments, clearing, and settlement are often a collaborative effort [42; 43]. Indeed, modern digital payments infrastructure based on bank deposits depends upon a variety of actors, and we imagine that digital payments infrastructure based on CBDC would do so, as well. The responsibility to manage and safeguard the value of currency is not the same as the responsibility to manage and oversee transactions, and the responsibility to supervise payment systems is not the same as the responsibility to operate them. A design that externalizes responsibility for the operation of a transaction infrastructure supporting CBDC is not incompatible with the operational role of a central bank in using CBDC to create money and implement monetary policy. The CBDC proposed in our design model relies upon the DLT infrastructure for a variety of reasons. In our view, this is currently the most plausible method of implementation whereby the central bank can collaborate with private sector firms, via either public-private partnerships or other collaborative and supervisory models, to deliver a national payments infrastructure operated by the private sector. The use of DLT does not imply that households and retail members of the public must have a direct account or relationship with the central bank, as some authors have wrongly assumed. On the contrary, our design recognizes the important role of MSBs, especially for identifying, onboarding, and registering new customers, satisfying compliance requirements, and managing their accounts, if applicable. In our view, the benefits of DLT broadly fall into three categories, all of which relate to the scope for errors, system compromise, and potential liability arising from exogenous or endogenous risk scenarios. We believe that each of these benefits is indispensable and that all of them are necessary for the system to succeed:  
1. _Eliminating the direct costs and risks associated with operating a live system with a role as master or the capacity to arbitrate._ Because its database is centrally managed, a centralized ledger would necessarily rely upon some central operator that would have an operational role in the transactions. This operational role would have the following three implications.