What form of digital assets will become the future of payment?

We live in an era when digital assets are moving towards mainstream adoption. From retail customers to traditional banks and financial service providers, digital assets are on the rise. Many of these asset promises will disrupt financial markets and large existing companies. Although they have received widespread attention, they have not yet reached their full potential.In other words, large institutions are paying attention-86% of central banks worldwide Exploring digital currency, According to the report of the Bank for International Settlements.

They realized that despite the golden age of innovation, the payment system is still somewhat outdated. Therefore, in my opinion, there is no reason for the current payment system not to follow a similar trajectory to the industry that has been transformed by new technologies in the past decade.

After all, the world we now live in is digital, so it makes sense that money and assets should follow suit. But how realistic is this in the next five years? Will the technologies and types of digital assets be the same?

related: Encryption is the next step towards a cashless society

Large organizations begin their digital asset journey

Institutional interest in cryptocurrencies continues to grow.Goldman Sachs conducted a survey of more than 300 high-net-worth clients and found 40% of them have been exposed To cryptocurrency. Recently, the second largest bank in Spain, Bilbao Vizcaya Argentaria (BBVA) Announced that it will launch A bitcoin (Bitcoin) Provide transaction services for Swiss private bank customers, while Citigroup is considering offering Trading, custody and financing services.

In addition to banks, payment companies such as MasterCard and Paypal Get involved in cryptocurrency by accepting payments for customers.

related: Can’t beat them?Join them: MasterCard and Visa defend Bitcoin

Then there is the Central Bank Digital Currency (CBDC). Infrastructure providers are trying to position themselves as ready for CBDC. SWIFT and Accenture recently released a joint report Overview If they become a reality, how can it function as a potential carrier for CBDC? In addition, central banks around the world are exploring CBDC and working hard to maintain public trust in currencies and payments. These retail and wholesale CBDCs can do this by providing unique features of finality, liquidity, and integrity, while providing security. For example, the most promising CBDC design will be associated with a digital identity, requiring users to identify themselves in order to obtain funds. This new enterprise promotes innovation that serves the public good.

related: Will CBDC affect the crypto sector in 2020, and what is the next step in 2021?Expert answers

However, cryptocurrency, CBDC and other forms of digital assets are still in the early stages of development. Almost unanimously, these assets need to become more standardized, safe, and robust before they enter the mainstream.

Regulators noticed this change

In the next few years, digital assets may face strict scrutiny by financial regulators and central banks before they are allowed as a form of secure payment. This is to be expected. Anything that may affect the smooth operation of the international monetary and financial system will face obstacles from its gatekeepers and those responsible for its operation and safety.

For example, the Basel Committee on Banking Supervision, the major global banking standard setter, Increased capital requirements For banks exposed to volatile cryptocurrencies, to reflect higher risks and financial stability issues. According to the proposal, banks will be required to hold capital equal to the risks they face. Therefore, a $100 Bitcoin exposure will require a minimum capital requirement of $100.

related: Will regulation adapt to encryption, or will encryption adapt to regulation?Expert answers

This may prevent regulated financial institutions from participating in or expanding their existing cryptocurrency services. For example, although BBVA has launched trading services in Switzerland, their entry into other markets has been delayed due to unclear and unstandardized regulations.

In other words, under these proposals, not all digital assets will be treated as severely as cryptocurrencies. Stock tokens and stablecoins will comply with the existing rules of the revised minimum capital standards for banks, which may make them a more viable option.

related: With mass adoption approaching, stablecoins have brought new difficulties for regulators

At the crossroads

Currently, cryptocurrencies are still unstable. On the other hand, stablecoins provide more secure, transparent and stable options. I firmly believe in their potential, especially due to their fast settlement speed. By including the data in the coin, the currency is associated with the fees it pays. This offers many automation possibilities, making it a strong competitor.

However, perhaps the form of digital assets we are most likely to adopt is a CBDC controlled and issued by the central bank. Significant tests have been conducted, and this type of digital asset will ensure strong supply, governance, and regulation, similar to the fiat currencies we see today.

For any of these digital assets, the recognition of end users—large companies, SMEs, and individual consumers—is critical to determining success. Success will ultimately be measured in decades rather than years.

This article does not contain investment advice or recommendations. Every investment and trading action involves risks, and readers should research on their own when making a decision.

The views, thoughts, and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Laurent Descott Co-founder and CEO of Neo, a new European B2B bank headquartered in Barcelona. He is a serial fintech entrepreneur and investor, and has worked as a financial consultant in the field of asset financing for more than 10 years. He holds a master’s degree in banking, finance and insurance from Paris Dauphine and a diploma in derivatives investment consulting from the Chartered Securities and Investment Institute.