The cryptocurrency industry is profitable. In the fourth quarter of 2020 alone, PayPal’s transaction volume increased by 36%, valued at nearly $ 277 billion USD. Growth began in the third quarter of 2020 when the company launched digital currency trading. This is one of the best quarterly returns in PayPal history.
However, in three to five years’ time, the central bank’s digital currency will be a part of our everyday life. Also, we need new infrastructure to make it widespread. China is the first company to actively promote its digital Renminbi project, called Digital Currency Electronic Payment (DCEP). China is completely focused on infrastructure, as many local banks have developed or developed their own e-wallets, which are the main vehicle for cooperation with DCEP
So far, the digital currency of the renminbi is the only valid digital currency issued by the central bank. It should be noted that more than 60 central banks around the world are exploring this opportunity. DCEP is based on centralized blockchain technology that is fully managed by the central bank. This technology can fully control all financial transactions, secure social spending targets, raise taxes and prevent financial crime.
In turn, the international payment system Visa recently introduced a protocol for offline transactions using digital currencies from the central bank. To pay offline or accept payments, all you need to do is download a mobile app. In this case, the central bank’s digital currency essentially replaces cash, thus increasing the number of transactions controlled by issuers, banks, or financial intermediaries.
The multi-format currency framework will become a requirement for financial instruments. Banks should ensure that legal and cryptocurrency transactions can be conducted through CBDC in one place: in the banking app. But there is a problem: the new format has nothing in common with the previous version. In addition, the government considers the establishment of a separate CBDC. In other words, it was not following uniform standards with neighboring countries.
How do you combine “old” and “new” currencies?
Cryptocurrency and CBDC are relatively new. Therefore, there are many uncertainties in these financial instruments. However, fiat currencies and digital currency have common functions, and the way and quality of their implementation will influence how multiform financial solutions are created.
Building a multiform financial solution requires a unified approach to compliance. If each department performed anti-money laundering checks on digital and cryptocurrency transactions according to their own policies, they would not be confirmed by the recipient’s bank.
People who are not deeply involved in cryptography may find that digital assets cannot be integrated into traditional business processes. But this is not true. Our experience has shown that there is a need to develop a standardized approach to compliance – both traditional laws and coding methods. Public humiliation of all digital asset owners hinders this process.
Additionally, in AML, cryptocurrency financial instruments are significantly more efficient than traditional systems. For example, the “Know Your Transaction” program can display the entire transaction history for a particular cryptocurrency, from the time the token is generated until the time it is sent to the user’s wallet, including all intermediary transactions.
Dexterity becomes more difficult
The differences between the “old” and “new” currencies described above are just a few, but they are so important that we cannot expect transparent use of different forms of currency. This is why compatibility between them is especially important for many banking and fintech services.
We are entering a new era of financial intermediaries of all sizes and scales. They will use different services to combine different types of electronic money, digital currencies for digital currencies and cryptocurrencies to serve their niche markets. For example, Visa card already supports fiat currency, cryptocurrencies, precious metals, and Bitcoin Cash Back (BTC).
When companies and individuals can choose between different types of currency / currencies / payment systems, only financial institutions can use multiple types