The widespread adoption of cryptocurrency has shaped various segments of the financial markets. From revolutionizing the speed of cross border payments, to transparent blockchain technology, digital assets are moving fast in today’s modern age.
The journey to mass adoption is still considerably long, but positive encouragement from cryptocurrency enthusiasts have enabled the rise of such payments to become adopted early. In the past year alone, over 60% of payments were contactless. New payment models will soon dominate card-based platforms, including the need for these payments to be done in real-time.
Cryptocurrency respondents have voiced out a strong demand for some form of mechanism to support payments with cryptocurrencies. Nevertheless, there are limited plans to provide services in this space yet. Partnership with third parties was viewed to be the best solution for this issue, rather than creating an internal payment infrastructure internally.
Aside from the use of cryptocurrencies and stable coins, a new form of digital asset will be likely to be produced: Central Bank Digital Currencies (CBDC). China is committed to producing its own digital Yuan in time for the Winter Olympics, while the Reserve Bank of Australia is testing the waters on a wholesale CBDC. While talks of a retail (or general purpose) CBDC have yet to emerge, Australia is certain to take the right steps into payments with new digital assets.
No high-income economies have yet made the decision to issue a CBDC. Fed officials have pointed to ongoing improvements in existing payment systems, unsure of the uncertain benefits of a CBDC and the risks associated with it.
Distinguishing Between New Digital Assets
Tony Richards, Head of Payments Policy of the Reserve Bank of Australia addressed two key factors that investors should know of when distinguishing between cryptocurrencies, stablecoins and CBDCs.
- Denomination and Backing: The aforementioned digital assets should be seen to be a spectrum of new forms of assets. One of the easiest ways to differentiate between the three lies in their reference to fiat currency and asset backing. Cryptocurrencies, for instance, have no reference to any fiat currency and no asset backing. Stablecoins are typically denominated in fiat currencies or aim for stability against fiat currencies. CBDCs, on the other hand, are denominated in fiat and are fully convertible at par into other forms of money.
- Governance and Technology: CBDCs are the most centralised out of the three types of digital assets, as they are produced by the government. Certain stablecoins are also ‘permissioned’ given their close ties to fiat currencies. Cryptocurrencies are the most different, especially with its transaction verification using the ‘proof of work’ mining competition.
The digital asset space has provided no shortage of research, analysis and policy work. Clearly, the digital asset space has gained momentum. While there is yet to be any disruption in the near future, investments into the digital asset world are being made.
