What does the future hold for fiat and finances? Considering the growing mainstream prominence of cryptocurrencies, digital assets, and the imminent emergence of CBDCs, experts believe that the global financial future will be quite different owing to smart digital money. Let’s recap the recent developments, which are signs of an ongoing change.

In the last few weeks, the cryptocurrency prices have been marching uphill, with Bitcoin alone reaching the $300 billion market capitalization. It is over the fiat monetary base of countries like Russia, Poland, Belgium, and Austria. There are multiple causes behind this development, which includes the recent U.S. Presidential election. Other factors that have contributed are the deployment of long-awaited CBDC by China and the uninterrupted growth DeFi and the dollar-denominated stablecoins.

To perceive the actuality of 21st-century money, one needs to review the payments value chain, especially the relationship shared by a monetary element, payment system, the assortment of payment networks, software ecosystems, and financial infrastructure as a whole. It allows us to clearly see the progress along with a glimpse into the future of finances. Speaking of crypto and blockchain, it is not just the value that gets digitized within the crypto wallets. It is the software that remains attached to programmable blockchain networks, with those functioning as payment rails and networks on which the decentralized assets are deployed.

The Payment Networks and Infrastructure

Let’s take the Visa Card network with a whopping 420 billion USD market capitalization, for instance, to understand the payments rails infrastructure. Its valuation is more than just money supply. Rather it is a market valuation of the discounted cash flows that come with owning a payment network. Its crypto equivalent can be referred to as the revenue pool accumulating to validators and miners who participate in securing the underlying blockchain networks. The card network allows the money to move across the network via nodes.

These are financial or economic nodes such as banks, e-commerce platforms, card issuers, point of sale terminals, regulators, etc. The incentive of Visa here is to exploit the transactions’ organizational share through the expansion of the global network across the technological domain. In the future, it is highly likely that the existing card networks will integrate with blockchain to reform their individual networks. The same can be expected across eCommerce, credit card issuers, and mobile point of sale domains.

Also Read: Bitcoin’s Market Cap Hitting a Record High Before Its Price

The Emergence of CBDCs

Governments being fully aware of the ongoing monetary digitization happening across verticals are focused on issuing their very own digital currency controlled by the Central Banks. The Central bank digital currencies or CBDCs are their centralized way of participating directly in the ongoing blockchain-based economic reformation by shifting the monetary instrument onto the emerging networks. Their action is pre-empting the public cryptocurrency assets from taking the form of money.

While most of the nations are working on perfecting the CBDC model, the Bahamas in October announced the launch of their Sand Dollar. The other pilot projects are divided into-

1. Wholesale CBDCs that majorly optimize and reinforce the role and responsibility of the banks and financial institutions comparative to the money management authority of the central bank, and

2. Retail CBDCs that would be able to bypass the banks and straightaway go into the consumers’ wallets.

While the first option is all about cost mutualization of the industry and efficiency the second has a more transformative approach. It analogizes the owning of Bitcoin very closely along with using the same for transactions. The present needs from the central banks are completely focussed on the ledger protocol which will decide where the transaction information will be recorded and how it will be processed and hosted.  That being said, it misses the bigger picture as blockchain is more than a record of financial transactions. The technology facilitates a programmable ecosystem, which can execute the transactions through software implementation.

If we look at the very recent CBDC developments in China, the digital yuan project has the involvement of more than 20 enterprises that are pooling the resources to execute the launch of the CBDC. As of now, the Chinese government is distributing the new currency to the citizens to drive adoption and prove the viability of the same. The currency has been deployed in volumes of hundreds of millions of USD.

Financial Future with the Advent of Smart Money

The interesting aspect of the money supply is not the monetary value, but what one can do with the same. A financial rail can thrive in the mobile commerce ecosystem, becoming a multi-billion dollar entity. A programmable blockchain will be able to include the business logic and functions of the payments enterprises, along with the digital economy of different operating systems, while assuming that the scaling works out properly. One can drive examples from crypto art, decentralized finance, and other virtual worlds. A blockchain-backed CBDC will facilitate a deeper integration between the payments infrastructure, money, and digital commerce.

It is a gradual transformation that will resonate across verticals but not abruptly. While the CBDC pilots are looking to perfect the money moving model, crypto has long done that. Experts suggest that maybe an applied architecture such as a permissioned blockchain network can solve the problem faced by the creators of digital national currencies.

The bigger question that we should be pondering is what impact the CBDCs will have on the global economy or the financial sector. What will be the architecture of applications that will facilitate CBDC payments and where will they conduct the economic functions? Experts suggest that the CBDC rails should be attached with pre-installed applications that will act as a guide and platform to execute the transactions. It is hard to perceive the exactness of what the future holds, but it can be surely predicted that the entire financial landscape is up for a major reformation and we should brace ourselves for the full-scale disruption of smart digital money.

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