Imagine a scenario where you need different messengers to send different types of messages – for example. B. WhatsApp for text messages, Viber for audio, Telegram for video, etc. Pretty boring, huh? But that is exactly what is happening in the financial world: It is not possible to send both digital money and cryptocurrency from a bank account without additional steps. The masses are not affected yet, but once national digital coins or central bank digital coins are issued, things could get complicated globally in the next few years. We need to find a solution now.

Data centers require a multi-format structure

The traditional financial system can no longer ignore new technologies. The number of cryptocurrency users nearly tripled from 35 million in 2018 to 101 million in the third quarter of 2020, according to the Cambridge Centre for Alternative Finance. Another study by researchers at the UK’s Financial Conduct Authority found a 78% increase since 2019.

Transactions in crypto-currencies are profitable. Only in the fourth. In the first quarter of 2020, PayPal increased the number of transactions by 36%, which amounts to about $277 billion. The growth started in the third quarter. Quarter 2020, when the company introduced encryption contracts. This is one of the best quarterly reports in PayPal’s history.

That’s what it looks like: Will PayPal’s integration of cryptography lead to mass adoption of cryptography? Expert response

But in three to five years, central bank digital currencies will be part of our daily lives. And we need a whole new infrastructure for widespread use. China was the first country to actively promote its digital RMB project, called Digital Currency Electronic Payments (DCEP). In China, it is all about infrastructure, as several local banks have already developed or are in the process of developing their own e-portfolios, the main tool for dealing with the DCEP.

That’s what it looks like: China is accelerating the pace of CBDC infrastructure development and pre-implementation testing.

So far, the Chinese digital yuan is the only example of a digital currency issued by central banks that really works. Remarkably, more than 60 central banks around the world are exploring this possibility. DCEP is based on a centralized blockchain technology that is fully managed by China’s central bank. This technology enables total control of all financial transactions, ensures that social spending is targeted, increases tax collection and prevents financial crime.

The international payment system Visa has recently introduced a protocol for off-line transactions with digital central bank currencies. To pay or receive payments offline, simply download the mobile application. In this case, CSDs essentially replace cash, resulting in a larger number of transactions controlled by the issuer, bank or financial intermediary.

Monetary pluralism will soon become a requirement for financial instruments. Banks need to ensure that fiat, CBDC and crypto transactions can be done in one place: the banking application. But here’s the difficulty: The new formats have nothing in common with their predecessors. Moreover, governments see the use of the EQFN as a task in itself. In other words: It does not follow the same standards as its neighbours.

What keeps you from combining old and new money?

Cryptocurrences and PCDs are relatively new. So there is a lot of uncertainty surrounding these financial instruments. Nevertheless, fiat money and digital money have common functions, and the manner and quality of their implementation will influence the way in which a multi-format financial solution will be achieved.

Implementing a multi-format financial solution requires a unified approach to compliance. If each service performs the anti-money laundering checks on MVTS and monetary cryptography in accordance with its policy, they will not be validated by the receiving bank.

People without a thorough knowledge of cryptography might think that digital assets cannot be integrated into traditional business processes. But that’s not true. From our experience, there is a need for a consistent approach to compliance for both traditional currencies and cryptocurrencies. The public defamation of all owners of digital property is challenged.

Moreover, crypto-finance instruments are much more effective in the fight against money laundering than the traditional system. For example, the Know Your Transaction method can display the entire transaction history for a given encrypted currency – from the time the token is created to the time it is sent to the user’s wallet, including all transactions between them.

Versatility is becoming increasingly difficult

The differences between old and new money described above are just a few examples, but they are important enough not to prejudge the seamless use of different forms of money. Interoperability between the two is therefore particularly important for many banks and high-tech services.

We are entering a new era with many financial intermediaries of all shapes and sizes. They will serve their own niche by combining different types of e-money, CBDC and cryptocurrency with a variety of services. For example, with Visa cards you can already withdraw fiats, crypto-currencies, precious metals and Bitcoin (BTC).

Although businesses and individuals can choose between different types of money/currencies/payment systems, only financial institutions that can handle a wide range of formats and services simultaneously can be called universal banks.

The views, thoughts and opinions expressed herein are solely those of the author and do not necessarily reflect those of Cointelegraph.

Alex Axelrod is the founder and CEO of Aximetria and Pay Reverse. He is also a serial entrepreneur with over a decade of experience in leadership technology roles. Was director of big data at the AFC Systems R&D Center. Previously, Alex worked at Mobile TeleSystems, Russia’s largest telecommunications provider, where he led the development of anti-fraud and cyber security systems.

frequently asked questions

Are banks allowed to hold cryptocurrencies?

Which banks are compatible with cryptocurrency?

11 best crypto friendly banks [update 2020].

Are banks afraid of cryptocurrency?

Banks are not afraid of Bitcoin or other cryptocurrencies. Maximalists think the banks are afraid of Bitcoin. Bitcoins lack of scalability, high cost and transaction fees make it unsuitable for use by banks. 99% of cryptocurrencies cannot be used by banks.

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