The Digitization of Money - Is Crypto the Future?

 

There is a lot of talk about cryptocurrency, but for many, digital currency is a very intangible size and far from most people's everyday lives. However, it pays to keep up with developments in the digitalization of money, because a lot is happening in that area right now.

The rapid development of digital technologies brings with it many new opportunities, but also potential changes that we should address.

Since its launch 12 years ago, Bitcoin has become more and more sought after and has taken its place as tomorrow's replacement for gold and is referred to as digital gold. Blockchain, which is the revolutionary technology behind Bitcoin, is also under strong development.

Blockchain technology is a decentralized system, which means that it is not centrally owned by e.g. a central bank as we know it from the traditional payment system.

The technology is being used in the development of thousands of new payment solutions that are currently competing to become part of the future financial ecosystem.

Our understanding of what money is and how the payment ecosystem is designed for a digital future is being challenged by new technologies like Blockchain, but also by global tech companies.

Big-tech and the relationship with consumers

 How will Nets adapt to future payments?

The crypto industry has until recently been considered a niche, but the growing attention over the past year has created concerns about the future.

One of the reasons for the increased attention is that Facebook last year tried to develop a stablecoin they call "DIEM", a digital currency and payment system for their platform, based on Blockchain technology.

In this context, the European Central Bank (ECB) and the supervisory authorities expressed concern that private digital currencies such as Facebook's DIEM could potentially challenge the euro's sovereignty and risk creating financial instability throughout Europe.

 In contrast to Bitcoin's constantly changing exchange rate, the so-called stack coins are linked to a national currency such as The euro.

Stable coins make it easier for consumers to deal with stable prices from day to day. In addition to Facebook's DIEM currency project, other major players in the payment market have entered into partnerships in the second half of 2020.

Paypal, Square, Venmo, Mastercard, and Visa have made cryptocurrency payments possible with wallet apps or payment cards. That such large players open up for crypto payments will most likely increase the approach to cryptocurrency in the wider population.

 From private currencies to central banks' digital currencies

The decline in cash payments, which has been accelerated by the Corona pandemic, and recent developments in stack coins from major private players in the payments market have intensified governments 'and central banks' research into digital currencies, also known as the Central Bank Digital Currency (CBDC). 2020 was therefore a year in which we experienced an increased focus on cryptocurrency and CBDC across national borders.

 China is in full swing testing the Chinese digital Yuan and the European Central Bank has released an official report and consultation on the design of a digital Euro.

A digital currency can be considered as digital cash, which is issued by the central bank. A digital Euro will therefore not replace physical cash, but will instead be offered as a completely new form of payment.

 The digital Euro is not a private currency like Facebook's DIEM, but instead a publicly available digital currency. Such a development is revolutionary and requires a deeper understanding and analysis of how a digital Euro will change our current payment landscape.

Whether the European Central Bank (ECB) will issue a digital Euro or not will be decided during this year. The President of the ECB, Christine Legarde, said at the end of 2020 that her feeling was that the digital Euro will become a reality within 2-4 years.

In 2019, I, Nina Framing, and Nets joined forces to explore the future of digital payments, focusing on the development of cryptocurrency and the digital Euro.

My research deals with the analysis of the market, technology, and regulatory processes, where I, among other things. I participate in expert groups.

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 During the first quarter of 2021, we at Nets have started testing crypto payments at payment terminals in Austria and are expected to spread that technology to other European countries.

The goal is to explore and understand the needs of both consumers and business operators in the new digital environments.

 Consumers' payment habits and payment solutions are changing in line with societal needs and the development of new technological possibilities.

Globalization and digitalization are forcing business owners to stay up-to-date to meet consumers' wishes for any new forms of payment. The main objective to ensure a secure and smooth payment system is a combination of different payment service providers.

 Due to the decentralized logic of payment systems like Bitcoin, most business owners prefer to have a direct agreement with a payment provider such as Nets.

Especially given the management of the risk that a crypto-payment can be with a broad group of consumers. The test of payment with cryptocurrency through Nets is a natural step in the development of digital currencies, where we hope to make payment solutions simpler and more accessible in the future and thus create the basis for growth and progress in a digital society.