fbpx
PaymentsJournal
SUBSCRIBE
  • Analysts Coverage
  • Truth In Data
  • Podcasts
  • Videos
  • Industry Opinions
  • COVID-19
  • News
  • Resources
No Result
View All Result
PaymentsJournal
  • Analysts Coverage
  • Truth In Data
  • Podcasts
  • Videos
  • Industry Opinions
  • COVID-19
  • News
  • Resources
No Result
View All Result
PaymentsJournal
No Result
View All Result

The Benefits of Using DLT for Digital Currencies

Icon Solutions by Icon Solutions
March 24, 2022
in Digital Currency, Industry Opinions
0
The Benefits of Using DLT for Digital Currencies

The Benefits of Using DLT for Digital Currencies

0
SHARES
0
VIEWS
Share on FacebookShare on TwitterShare on LinkedIn

Central banks across the globe are exploring and testing Distributed Ledger Technology (DLT) to provision Central Bank Digital Currencies (CBDC). In this blog, Arjeh van Oijen, Head of Product Management, and Atul Verma, Senior Payments Architect at Icon Solutions, explore how DLT overcomes the restrictions of existing financial infrastructures, to provide a viable digital alternative to physical coins and banknotes.

The changing face of money

Money as we know it, also known as fiat currency, has taken many guises. For centuries, ‘money’ meant coins and banknotes. Yet nowadays, the majority of fiat money is registered in commercial bank accounts, and payments take place through a digital transfer between two bank accounts.

Over the years, interest in cryptocurrencies has exploded to become a multi-trillion-dollar business. This is remarkable considering cryptocurrencies and their underlying platforms are not regulated and run by a central (governmental) body, but by ‘communities of independent parties’. Their value is completely determined by supply and demand. As a result, cryptocurrencies have proven to be very volatile. This has made them interesting for speculation but less suited for today’s financial system, where it is essential for the acceptance of a currency that its value remains stable and can be redeemed with the issuer at any moment of time in the future.

While crypto maximalists would disagree, fiat money – which is government-issued currency controlled and regulated by central banks – is much more stable. Central banks are responsible for ensuring the value of fiat currency remains secure, and have multiple instruments at their disposal to help keep inflation (or deflation) within required boundaries.

What are the advantages of DLT platforms for financial infrastructures?

In the slipstream of cryptocurrency’s growing popularity, interest in the underlying technology has also increased in recent years. This technology, known as blockchain or DLT (the latter is considered more adequate), makes it possible to create highly secure and reliable platforms to transfer assets and perform business transactions. The Bank for International Settlements (BIS) reports that as of 2021, 60% of central banks were experimenting and conducting their own proof of concepts with DLT technology to enable a Central Bank Digital Currency (CBDC). A CBDC is a fiat currency issued by a central bank and made available on a DLT platform to facilitate the processing and settlement of financial transactions between financial institutions and/or end users.

A key driver of central banks’ strong interest in DLT is the fact that it can be used to overcome the restrictions of existing financial (market) infrastructures. DLT makes it possible to create highly secure and reliable platforms to transfer assets and perform business transactions, without the need to rely on one centralised infrastructure. DLT-based CBDCs can be used to settle payments and other financial transactions in real time, 24×7, and with a high availability, and is much less vulnerable to disruptions (including cyber-attacks) than existing infrastructures. DLT also meets the highest security requirements in the market from both a reliability as well as a data confidentiality perspective.

CBDC as an enabler of financial inclusion?

Besides the settlement of financial transactions between financial institutions, digital currency platforms built on DLT could deliver affordable and scalable solutions, and the data transparency and security required to help boost financial inclusion.

A significant portion of the global population still has no access to basic banking services. DLT offers lower transaction costs, which provides an incentive for financial service providers to expand their operations to reach communities in underserved economies. It would also enable unbanked populations to open an account in fiat currency and use this account to receive funds and perform payments. What’s more, with DLT technology it is even possible to issue digital currencies for a specific purpose, such as fees for education.

As the BIS notes: “A trusted and widely usable retail CBDC must be secure and accessible, offer cash-like convenience and safeguard privacy.” This is where DLT stands to deliver some significant advantages over conventional digital currency bank architecture, and a growing number of central banks are considering it for their next-generation payment platforms. India’s central bank, for example, has just revealed its plan for a blockchain-based rupee by 2023 and at Icon we expect more to follow.

As momentum for digital currencies continues to build, DLTs present wide-ranging strategic opportunities for central banks to expand their fiscal armoury, modernise payment systems, support economic stability, and promote financial inclusion.

Tags: CBDCCentral Bank Digital CurrencycryptoCryptocurrenciescryptocurrencyDigital CurrencyDistributed LedgerFinancial Inclusion
0
SHARES
0
VIEWS
Share on FacebookShare on TwitterShare on LinkedIn

    Analyst Coverage, Payments Data, and News Delivered Daily
    Sign up for the PaymentsJournal Newsletter to get exclusive insight and data from Mercator Advisory Group analysts and industry professionals.

    Must Reads

    Why Banks and Credit Unions Need to Adopt Real-Time Payments Now

    Why Banks and Credit Unions Need to Adopt Real-Time Payments Now

    August 10, 2022
    Making Sense of Online Identity

    Making Sense of Online Identity

    August 9, 2022
    Account Takeover Fraud Is Getting More Sophisticated. How Can We Beat It?

    How to Protect Consumers from Account Takeover Fraud

    August 8, 2022
    Technical Challenge or Business Enabler? Seizing the Opportunity of PCI DSS Compliance

    PCI DSS v4.0 Compliance: Raising Your Script Security Awareness

    August 5, 2022
    Reexamining Buy Now Pay Later as PayPal Makes a Bigger Move

    Reexamining Buy Now, Pay Later as PayPal Makes a Bigger Move

    August 4, 2022
    Putting AI and Machine Learning to Work Against Fraud for Banks, PSPs, and Merchants

    Putting AI and Machine Learning to Work Against Fraud for Banks, PSPs, and Merchants   

    August 3, 2022
    Global Payments report

    The Global Payments Report from FIS

    August 2, 2022
    Rillion Rebrands and Launches AP Automation in the U.S. Market

    Eliminating month-end reporting headaches with AP automation

    August 1, 2022

    • Advertise With Us
    • About Us
    • Terms of Use
    • Privacy Policy
    • Subscribe
    ADVERTISEMENT
    • Analysts Coverage
    • Truth In Data
    • Podcasts
    • Videos
    • Industry Opinions
    • COVID-19
    • News
    • Resources

    © 2022 PaymentsJournal.com

    • Analysts Coverage
    • Truth In Data
    • Podcasts
    • Industry Opinions
    • Faster Payments
    • News
    • Jobs
    • Events
    No Result
    View All Result