Since the publication in November 2008 of Satoshi Nakamoto’s white paper, Bitcoin: A Peer-to-Peer Electronic Money System, the term “blockchain” has become synonymous with digital currencies in the sense of the underlying technology that allows value to be transferred. , from a peer.
Interestingly, the term “blockchain” has never been used in this whitepaper. The purpose of this document was to propose a solution to the fundamental problem of dual use of digital currency, which would represent a direct transfer of value between the participants in a transaction without the use of a reliable central third party.
Currencies are by definition a means of exchange for goods and services, a unit of account and a store of value. Money in the traditional sense gives rise to all three elements.
The central bank’s digital currency
There is now a huge ongoing interest in the central bank’s digital currencies, or CBDs – not from the blockchain and crypto community, but in fact from a core group of some of the most powerful central banks, including the Bank of England, the Swiss National Bank. Bank, European Central Bank, Bank of Japan and Bank of Canada. And the Swedish Riksbank and the Bank for International Settlements.
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A late confirmation from the British Secretary of State (Head of Her Majesty’s Treasury) presupposes that the United Kingdom will set special rules for central banks’ stable currency and cryptocurrency, which indicates the progress of this topic at the moment. China has undoubtedly been a pioneer in the development of the central bank’s digital currencies, and has recently proposed a universal set of rules aimed at solving problems such as jurisdictional compatibility.
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The key element in any national monetary policy and financial stability is public confidence in the central banks and the assurance that funds provided by the central bank correspond to the three basic elements of a currency – whether issued in physical or digital form. The central bank’s digital currency is not a stable currency and is not a digital asset, but is a digital representation of cash – that is, a digital pound today will be worth the same value tomorrow and its purchasing power (what the owner can buy). does not fluctuate after these specific thresholds.
The European Central Bank’s proposal on the digital euro was based on the premise of complementing the existing monetary system and creating a wholesale central bank deposit. It is seen as a way to give European citizens access to a secure form of money in a rapidly changing digital world, while promoting innovation in retail payments, supporting vulnerable communities and limiting their potential economic isolation. The digital euro is also seen as an alternative to reducing the overall costs and environmental impact of the existing monetary and payment system.
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As the economy is currently witnessing the development of ideas for central bank releases, stack coins or private digital currencies, the experience has been about the same as previous money innovations: coins, banknotes, checks and credit cards. Many people look at blockchain and distributed ledger technology, or DLT, as a mechanism to replace electronic currency in traditional bank accounts. Just as paper money replaced gold and silver, bank transfers can replace paper money.
The emergence of digital currencies
The current COVID-19 pandemic has triggered a drive for cashless transactions and affected the way society interacts financially, thus accelerating the concept of digital currencies in people’s minds. With fewer cash transactions, businesses and consumers are increasingly realizing the features and benefits of digital currencies.
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In fact, central banks trade with other qualified financial institutions, often with clearing banks, using electronic deposits from central banks. Apart from this system, they also issue banknotes and coins to the public. The digitization of these banknotes and currencies is a natural progression in our more digital world.