The European Union has recently put together a proposal for the introduction of a Central Bank Digital Currency (CBDC). Here we explain what a CBDC is, and how your company can actually implement similar technology.
CBDCs have been a hot topic over the past few months, with many countries expressing interest in creating their own CBDC, with some even making it a reality. A CBDC is a digital token which represents the physical form of the fiat currency of a specific country. The design of each CBDC differs based on those specific nations, but most implementations are primarily based on a form of Distributed Ledger Technology (DLT), the most common tech being blockchain.
Are CBDCs Similar to Cryptocurrency?
While many people argue that CBDCs were inspired by cryptocurrencies like Bitcoin, they are significantly varied from Bitcoin’s original design. A CBDC is a centralised digital token issued by a country’s central bank and declared as legal tender by that specific country in question. You could think of a CBDC as a digital bank note. CBDCs are classified as “centralised” because they are controlled by central authorities: The nation’s central banks.
CBDCs are often created on permissioned (private) blockchains, which means that the transactions and financial data are not publicly displayed on the blockchain for everyone to see. When it comes to CBDC transactions, users who transact with them will have their identity associated with their personal information. Furthermore, the supply of CBDCs is not capped like Bitcoin’s hard cap of 21 million, and instead is accounted based on the specific country’s monetary policy.
Cryptocurrencies like Bitcoin and Ethereum are decentralised digital assets, based on permissionless blockchains, meaning that all transactions are public and can be accessed by anyone. Cryptocurrencies are regarded as decentralised because they are not issued or controlled by centralised authorities; there is no central authority capable of limiting their use.
How Your Company Can Implement Similar Technology
The adoption of Blockchain technology is expected to rise tenfold over the next few years due to its value-add for businesses. The value of blockchain businesses are expected to exceed $3.1 trillion by 2030.
Businesses are slowly starting to explore the various use cases that the tech offers, paving the way for its future adoption. One of those benefits being blockchain-based loyalty programs/tokens.
Most loyalty programs, specifically those that involve a large number of partners and merchants, can be slow to verify and restore rewards/loyalty points earned by users across their network. By utilising blockchain tech, this process can be performed faster, safer and more efficiently. Blockchain technology is also used to easily onboard new partners and reconcile payments, resulting in a reduction in cost and increased efficiency throughout the process.
In 2018, Singapore Airlines announced the launch of the world-first blockchain-based airline loyalty digital wallet, KrisPay: A miles-based digital wallet which members could use to convert miles into digital tokens to spend with a variety of other merchants. At launch, KrisPay had a total of 18 merchants through a variety categories ranging from food services to fuel and retail.
The airline has since expanded on KrisPay, turning it into a digital lifestyle platform to engage users beyond flight bookings. The platform (Kris+) now caters for users to spend their rewards by shopping, dining or even buying everyday items. There are currently more than 175 partners and 780 outlets across Singapore.
This is just one example of how your business can utilise fintech solutions to grow your customer base. Contact Traderoot today to see how we can help in implementing such tech in your business environment.