Blockchain
banking
Cryptocurrencies
Stablecoins
Digital
payments
CBDCs
Crypto tends to dominate the headlines. But many other forms of digital money and digital payment systems are also available, some of which are far more widely used than crypto.
In theory, stablecoins are cryptocurrencies that justify their name by being pegged to fiat currencies or other assets. In practice, as some high-profile examples such as Circle's USD Coin and Terra have shown, such systems can come unstuck.
Despite such negative publicity, though, stablecoins are widely seen as being safer than ‘pure’ crypto. In the summer of 2023, PayPal launched a dollar-pegged stablecoin built on the Ethereum blockchain. The association of stablecoins with household name businesses such as PayPal will inevitably increase their usage.
The UK has proposed bringing stablecoins within the scope of the Financial Services and Markets Act and the Payment Services Regulations, which will – among other things – require them to be fully backed by central bank deposits. Such a regulatory regime – which the UK intended to expand in time to other digital assets – would move stablecoins much closer to being a widely accepted ‘alternative currency’ for payments.
Stablecoins
While events such as the fall of FTX have harmed crypto, they have done less damage to the image of the blockchain technology on which it is based.
And while mainstream banks are mostly still wary of cryptocurrencies – with many opting to block transfers or credit card purchases by retail customers that involve crypto exchanges – they are embracing blockchain technology to revolutionise their businesses.
The benefits to a bank can range from increasing the speed of settlements and lowering transaction costs to achieving greater security by using a decentralised ledger to record transactions.
There are also of course challenges – not least that adopting blockchain is usually easier for a fintech startup than for an established bank with legacy systems and data. But as traditional banks seek to consolidate their market presence against competition from fintechs, blockchain technology looks increasingly like a valuable tool.
Blockchain banking
It is still relatively rare for crypto to be used in making everyday purchases. In contrast, the less headline-grabbing but far more widespread digital payments ecosystem has revolutionised the way many people buy things and move money around.
While digital payments began with credit and debit cards, the development of smartphones broadened and turbocharged their possibilities, with digital wallets, ‘virtual’ cards and payment transfer apps all now familiar payment methods. The move away from cash during the pandemic has hastened this trend, as has the adoption of smartphones in many developing nations, where digital payments are often an attractive alternative for a population with limited access to reliable traditional financial services.
Various technologies are used to power digital payments. Some very widely used digital payment systems like India’s Unified Payments Interface (UPI) and Brazil’s Pix are not based on blockchain technology.
Digital payments
Central bank digital currencies (CBDCs) are essentially fiat currencies in digital form. Some use blockchain technology. But unlike commercial cryptocurrencies, they are backed by the resources of a central bank, making them just as safe as paper currency issued by that bank. And as economies move away from cash, central banks are increasingly interested in the idea of CBDCs.
According to the Atlantic Council, 130 countries, accounting for 98% of global GDP, are exploring a CBDC, with 64 having begun development. Eleven of these have actually launched their CBDCs.
But many also question the value of a CBDC to an economy, particularly in nations that already have a robust financial infrastructure. (They may have a greater impact in countries where a significant part of the population is unbanked.) Some central bankers are also concerned that CBDCs might be too successful, with a rush to move deposits from traditional bank accounts into CDBCs triggering bank runs. Such anxieties may see caps or transfer limits for retail CBDC holders.
CBDCs
CBDCs
Digital
Payments
Blockchain
banking
Stablecoins
Cryptocurrencies
Crypto tends to dominate the headlines. But many other forms of digital money and digital payment systems are also available, some of which are far more widely used than crypto.
In theory, stablecoins are cryptocurrencies
that justify their name by being pegged to fiat currencies or other assets. In practice, as some high-profile examples such as Circle's USD Coin and Terra have shown, such systems can come unstuck.
Despite such negative publicity, though, stablecoins are widely seen as being safer than ‘pure’ crypto. In the summer of 2023, PayPal launched a dollar-pegged stablecoin built on the Ethereum blockchain. The association of stablecoins with household name businesses such as PayPal will inevitably increase their usage.
The UK has proposed bringing stablecoins within the scope of the Financial Services and Markets Act and the Payment Services Regulations, which will – among other things – require them to be fully backed by central bank deposits. Such a regulatory regime – which the UK intended to expand in time to other digital assets – would move stablecoins much closer to being a widely accepted ‘alternative currency’ for payments.
Stablecoins
While events such as the fall of FTX have
harmed crypto, they have done less damage to the image of the blockchain technology on which it is based.
And while mainstream banks are mostly still wary of cryptocurrencies – with many opting to block transfers or credit card purchases by retail customers that involve crypto exchanges – they are embracing blockchain technology to revolutionise their businesses.
The benefits to a bank can range from increasing the speed of settlements and lowering transaction costs to achieving greater security by using a decentralised ledger to record transactions.
There are also of course challenges – not least that adopting blockchain is usually easier for a fintech startup than for an established bank with legacy systems and data. But as traditional banks seek to consolidate their market presence against competition from fintechs, blockchain technology looks increasingly like a valuable tool.
Blockchain banking
It is still relatively rare for crypto to be
used in making everyday purchases. In contrast, the less headline-grabbing but far more widespread digital payments ecosystem has revolutionised the way many people buy things and move money around.
While digital payments began with credit and debit cards, the development of smartphones broadened and turbocharged their possibilities, with digital wallets, ‘virtual’ cards and payment transfer apps all now familiar payment methods. The move away from cash during the pandemic has hastened this trend, as has the adoption of smartphones in many developing nations, where digital payments are often an attractive alternative for a population with limited access to reliable traditional financial services.
Various technologies are used to power digital payments. Some very widely used digital payment systems like India’s Unified Payments Interface (UPI) and Brazil’s Pix are not based on blockchain technology.
Digital payments
Central bank digital currencies (CBDCs)
are essentially fiat currencies in digital form. Some use blockchain technology. But unlike commercial cryptocurrencies, they are backed by the resources of a central bank, making them just as safe as paper currency issued by that bank. And as economies move away from cash, central banks are increasingly interested in the idea of CBDCs.
According to the Atlantic Council, 130 countries, accounting for 98% of global GDP, are exploring a CBDC, with 64 having begun development. Eleven of these have actually launched their CBDCs.
But many also question the value of a CBDC to an economy, particularly in nations that already have a robust financial infrastructure. (They may have a greater impact in countries where a significant part of the population is unbanked.) Some central bankers are also concerned that CBDCs might be too successful, with a rush to move deposits from traditional bank accounts into CDBCs triggering bank runs. Such anxieties may see caps or transfer limits for retail CBDC holders.
CBDCs