April 29th 2021

The Digitalization of Money - Is Crypto the Future?

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There is a lot of talk about cryptocurrency, but for many people, digital currency is a difficult concept to grasp and far removed from their everyday lives. However, it is worth following the development of the digitalization of money a little, because a lot is happening in this area right now.

The rapid development of digital technologies brings with it many new opportunities and potential changes

Since its introduction 12 years ago, Bitcoin has become increasingly sought after. It has taken its place as the gold of tomorrow and is already being referred to as digital gold. Blockchain, the revolutionary technology behind Bitcoin, is also developing rapidly. 

Blockchain technology is a decentralized system that is not centrally owned by anyone, such as a central bank, as we know it from the 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 such as blockchain, but also by global tech companies.

Big tech and the relationship with consumers

Until recently, the crypto industry was considered a niche, but the increased attention of the past year has raised concerns about the future. One reason for the heightened attention is Facebook's attempt last year to develop a stablecoin called DIEM, a digital currency and payment system for its own platform, based on blockchain technology. In this context, the European Central Bank (ECB) and regulatory authorities expressed concerns that private digital currencies like DIEM from Facebook could undermine the sovereignty of the euro and cause financial instability throughout Europe..

In contrast to the constantly changing exchange rate of Bitcoin, the so-called stablecoin is pegged to a national currency such as the euro. The stablecoin makes it easier for consumers to keep prices stable from day to day. In addition to the Facebook currency project DIEM, other major players in the payment market entered into partnerships in the second half of 2020. PayPal, Square, Venmo, Mastercard and Visa have enabled cryptocurrency payments with wallet apps or payment cards. The fact that such major players are enabling crypto payments will most likely increase the adoption of cryptocurrency among the wider population..

From private currencies to central bank digital currencies

The decline in cash payments, accelerated by the COVID-19 pandemic, along with recent developments in stablecoins by major private players in the payment market, have heightened the research efforts of governments and central banks into digital currencies, also known as Central Bank Digital Currency (CBDC). Consequently, 2020 became a year where we witnessed an increased focus on cryptocurrency and CBDC across borders..

China is in the process of testing the Chinese digital yuan and the European Central Bank has published an official report and consultation on the design of a digital euro. A digital currency can be seen as digital cash issued by the central bank. A digital euro will therefore not replace physical cash, but will be offered as a completely new form of payment.

The digital euro is not a privatized currency like Facebook's DIEM but rather a publicly accessible 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) issues a digital euro will be decided later this year. ECB President Christine Lagarde stated at the end of 2020 that she felt the digital euro would become a reality within two to four years.

How is our parent company Nets adapting to the cryptocurrency future?

In 2019, Nina Frausing worked with Nets to examine the future of digital payments, focusing on the development of cryptocurrencies and the digital euro. Her research focuses on analyzing market, technology and regulatory processes, which is why she participates in expert groups, among other things.

In the first quarter of 2021, we at Nets started testing crypto payments at payment terminals in Austria and expect to roll out this technology to other European countries. The aim is to research and understand the needs of both consumers and businesses in the new digital environments..

Consumers' payment habits and payment solutions are changing in line with social needs and the development of new technological possibilities. Globalization and digitalization are forcing merchants to keep up to date in order to meet consumer demands for new payment methods. The main objective to ensure a secure and frictionless payment system is to enable different payment service providers to interact with each other.

Due to the decentralized logic of payment systems such as Bitcoin, most merchants prefer to enter into a direct agreement with a payment provider such as Nets.

Especially in terms of dealing with the risk that a crypto payment can represent for a broad group of consumers. Testing payment with cryptocurrency via Nets is a natural step in the development of digital currencies. In doing so, we hope to make payment solutions easier and more readily available in the future, laying the foundation for growth and progress in a digital society.

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