• Fintechs see potential in digital currency
• Opportunities in stablecoins and CBDCs
• Issues with Bitcoin
Card payments have increasingly replaced cash in recent years. In this context, it is not surprising that major payment service providers are also exploring the potential of digital currencies in terms of use as a means of payment. However, as “CoinDesk” reported, citing a study by financial services provider Cowen, these companies see stablecoins and central bank digital currency (CBDC – Central Bank Digital Currency) as a “more elegant” solution than Bitcoin.
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PayPal builds on the existing crypto ecosystem
PayPal, for example, wants to operate within the existing crypto ecosystem, but there are currently no plans for its own crypto product. Edwin Aoki, chief technology officer for blockchain, crypto and digital currencies, and Jose Fernandez da Ponte, the senior vice president of that division, told Cowen.
Both managers see room for the use of various digital assets and tokens, including digital sovereign currencies as well as stablecoins, which are digital currencies whose value is primarily tied to sovereign fiat currencies. On the other hand, they feel that decentralized cryptocurrencies such as Bitcoin for payments do not perform so well, citing their scalability issues i.e. they are too slow when processing multiple transactions, as a reason. As the validity of transactions is validated by a complex consensus process, there are considerable latencies in the communication between network nodes when processing transactions. The result is not only low transaction throughput, but also high transaction costs.
Visa excited about digital cash
The fact that Visa has a great interest in digital currencies became clear no later than June 2019, when Facebook presented its stablecoin project Diem (ex Libra) and it was learned that Visa belonged to the coalition of 28 companies that support Libra. Although the project came to nothing, Visa remains committed to the technology and has formed new partnerships to facilitate everyday digital currency payments.
Vasant Prabhu, Visa’s Chief Financial Officer, reiterated to Cowen that the American company remains passionate about digital currencies and remains committed to becoming a bridge between the crypto and fiat worlds. But like PayPal officials, Vasant Prabhu was also reluctant to comment on the world’s most popular cryptocurrency: Bitcoin has “limits” in terms of its function as a means of payment, Prabhu explained, citing issues volatility and speed as justification.
Bitcoin less elegant
In summary, the Cowen study concluded that Bitcoin as a means of payment is a “significantly less elegant approach, while stablecoins and CBDCs present a superior solution.”
However, in many economies there is still a long way to go before the introduction of their own national digital currencies. Because the US Federal Reserve and the ECB are taking their time with the CBDC project. According to the International Monetary Fund (IMF), this cautious approach is the right one, after all, every economy is different, so central banks must find their own solutions, IMF chief Kristalina Georgieva wrote in a blog post, according to “Reuters” . There are also critics who warn of the dangers to privacy and possible abuse of power by the central bank in connection with the CBDC. So it remains to be seen when and if CBDCs will even be used as a form of payment.
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