The volatility of bitcoin has yielded the stage to more practical applications of blockchain for payments across verticals from gaming to loyalty. But there is still another phase of development, waiting to take the spotlight — and it may not be driven by banks.
It’s unlikely that even the most adventurous financial institutions will independently drive digital currency development in the near future, but banks will probably be fast followers and reap the benefits, said David McHenry, Silicon Valley Bank’s U.K.-based head of global treasury and payments advisory for EMEA.
“We find digital currency to be incredibly interesting, both from the investment side and from the perspective of an institution that’s often classified as a challenger bank, looking at how blockchain and cryptocurrencies could play a meaningful role in banking and transactions,” McHenry said.
Digital currency based on blockchain technology has the capacity to radically improve banks' transactional efficiency, with the right level of confirmations and trust across all touchpoints.
“Blockchain could slim down the stack of other technologies we use now to move funds, and if you add digital currency to it, moving at the same time as blockchain, funds movement begins to look very efficient and smooth,” McHenry said.
Based on the activity at payment technology labs and hackathons, loyalty and gaming are two areas where breakthroughs with digital currency are imminent.
Digital currency seems an ideal fit for gaming communities where there is demand for easy transmission and exchange of network goods. Retailers — which have long used tokens for loyalty, redemptions and returns — also are a prime channel for adopting digital currencies.
Building consensus around the form and regulatory frameworks for emerging digital currencies will be the big challenge of the next several years, and based on what’s happened so far, governments may have the edge over other organizations.
China is well on its way toward building a digital version of the yuan within the next year and Japan has is now writing a proposal for its own central bank digital currency, joining countries including Canada, Australia, Sweden, Israel and Russia that are all working on national digital currencies.
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This creates an opening for stablecoins, which aim to be safe, stable, reliable and compliant. Stablecoins, built with blockchain technology, are cryptocurrencies tied to traditionally stable assets like the U.S. dollar, and may be connected to other stable, tradeable assets, which could marry the efficiency digital currency with practical existing monetary frameworks.
Watch for the initial concept — blockchain-based technology based on a basket of different currencies — to shift its shape while Libra regroups around its original goal of creating a payment network with essential financial services accessible to billions.
“Strong feedback was certainly expected and is enshrined in our long launch runway,” said Dante Disparte, head of policy and communications for The Libra Association, adding: “We hope that by 2025 we are making an impact and delivering against our mission.”
Mastercard was among the companies that pulled back from its initial support of Libra, but it will continue to monitor the concept, according to Michael Miebach, chief product and innovation officer at Mastercard. More immediately, Mastercard is looking for proofs of concept emerging from government and other digital currencies.
“By 2025, Central Bank Digital Currencies (CBDCs) will have gained significant momentum, and we’ll have moved beyond the pilot phase and we’ll see established, stable digital currencies with growing volume of digital transactions,” Miebach said.
The most promising digital currency use cases revolve around blockchain-powered concepts to improve financial inclusion while reducing informal economies, particularly in developing countries, Miebach said. "We're convening partners within the ecosystem, using our experience to develop standards and rules, helping create new policies and legal constructs that will help all stakeholders safely realize the great potential of blockchain and cryptocurrency."
Veterans of bitcoin’s ups and downs predict fierce competition among governments over who will control any emerging digital currency and how its value will be determined, and one observer suggests European nations will have an advantage over some other countries.
The European Union has already established what Libra is trying to promise, with 11 settlement points across its economic region and counting,
With many countries exploring digital currencies for different purposes, a major nation is likely to debut a broadly available digital currency within the next year and certainly by 2025.
But in the trenches of specific industries, experts doubt whether digital currency technology will solve some of today’s most complex payment sequences anytime soon.
“It’s up in the air as to whether cryptocurrency will play a larger role in health care by 2025 because its volatility remains a concern for adoption,” said Clayton Bain, founder and CEO of Salucro Healthcare Solutions, a Phoenix-based cloud-based payment processing for health care providers.
But as the health care industry eventually migrates away from paper invoices to tracking and paying bills with mobile devices, Bain sees possibilities: “Digital wallets offer several options for health care payment types — including cryptocurrency."
