GUIDE TO DIGITAL CURRENCY MODELS
It was their fast and dynamic approach to speed up business transactions that put digital currencies on our radar – but as soon as we realized they might achieve any of these objectives and more, depending on how they are designed, we jumped at the chance to introduce them to you…
Physical currency, or simply paper money, serves as a unit of account, a means of trade, and a store of value. Digital currencies may accomplish any or all of these goals, depending on how they are created. For instance, certain digital coins and tokens are especially designed to be used for anonymous value transfers. Some are designed to speed up business transactions. Others are envisioned as a virtual currency linked to the value of the national currencies that are currently in use. The multitude of concepts can lead to a complex environment, with more than 50 different forms of digital currency now under development. (Source: BCG) We have emphasized the key areas under which many experimental models are evolving in order to make things simpler.
#Cryptocurrencies
Any kind of money that exists digitally or virtually and uses cryptography to safeguard transactions is known as cryptocurrency, also referred to as crypto-currency or crypto.?As a general rule, cryptocurrencies can be divided into two groups: coins and tokens. A coin is any cryptocurrency with its own separate blockchain (e.g., Bitcoin). However, tokens are a non-native asset, meaning that they use another blockchain’s infrastructure. In both ways, coins and tokens are blockchain-based, enable transactions, or are used as a long-term store of value. Because they operate on a decentralized basis and use cryptography for security and anti-counterfeiting measures, they generally afford a certain degree of anonymity in peer-to-peer transactions.
#Stablecoins
The US dollar or other national currencies are some examples of the assets to which these digital tokens are linked. The most often used stablecoins are those backed by fiat, but asset-backed coins can also be linked to commodities like gold. The majority of them serve as a fundamental medium of exchange for market access, risk management, storage, and to ease business dealings between the virtual and real worlds. USD Coin, Gemini Dollar, and TrustToken are a few examples.
For more, read our article In the know: Stablecoins
Consortium Stablecoins
#Consortiumstablecoins are issued by groups as opposed to specific organizations, like asset-backed stablecoins. Think of Libra as an example. Similar to other stablecoins, consortium stablecoins allow for immediate cross-border payments and may be particularly appealing to people who do not belong to the established banking system. For instance, with Libra, Facebook and its partners initially aimed to develop a blockchain-based currency that would be backed by a basket of world currencies, such as the US dollar, the euro, and the Japanese yen. This would have effectively created a supranational currency that would be independent of the current national and international regulatory bodies. Nonetheless, concerns regarding the concentration of power have been voiced, and Libra has been vehemently opposed. (Source: CNN)
领英推荐
Corporate currencies
#Corporatecurrencies are mostly used for business-to-business transfers. They benefit from the transaction speed and efficiency provided by open blockchains while still maintaining control over the network and the capacity to impose limitations. Participants may feel more confident in the legitimacy of the network with pre-approved access. Private business currencies like Signet and JPM Coin are examples. To make payments easier within their networks, certain businesses, like Walmart, Amazon, and Rakuten, have also announced the creation of corporate currencies. (Source: Corporate Walmart) Retail banks may create corporate coins to replace fiat currency in debit or credit cards. It would be challenging for customers to comprehend the relative value of various options if there were a plethora of corporate currencies, though.
Central Bank Digital Currencies
A CBDC in short, is a central bank currency that can be used electronically by individuals, corporations, and government agencies to store value and make payments. It is central bank digital money in the form of legal tender with the central bank's obligation, much like physical money that is in use today (for example, the US dollar). Because of this, #cbdcs are more stable and safe than other digital currencies. To put it simply, CBDCs are: (1) traditional money, but in digital form; (2) issued and governed by a national central bank; (3) influenced by a country’s monetary policies, trade surpluses, and central bank; and (4) based on a digital ledger with or without blockchain. These currencies might facilitate the automation of monetary policy, which would lessen the risk of hyperinflation in developing nations and narrow the gap between rich and poor in terms of purchasing power. Nations could reduce criminal activity, tax evasion, and drug trafficking through improved traceability.
For more, read our article The future of CBDCs
The sociocultural effects of a currency's design can affect its competitiveness and worth over the long term. As the International Monetary Fund notes, payments are more than just a simple money transfer: they serve as a fundamentally social connection between individuals. Boston Consulting Group discovers that a currency's risk and return can be affected by economic, consumer, ethical, environmental, social enablement, and governance aspects. For example, CBDCs and consortium stablecoins are likely to expand value sources and have the greatest positive social impact, while asset-backed stablecoins and cryptocurrencies create dynamic economic growth and offer solid governance structures. Even though Bepace predicts it will take some years for the most promising digital currency ecosystems to reach a critical mass, the first-mover advantage will be difficult to overcome. Businesses and their executives must devote time today to comprehending how evolving models will affect their countries and organizations, regardless of whether they aim to be among the early adopters, participate as fast integrators, or wait until the digital currency market is more developed.