new form of money and payment

New Forms of Money & Payment

A summary of innovations built on Distributed Ledger Technology (DLT)

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The Foundation: Distributed Ledger Technology (DLT)

DLT is the underlying technology enabling new financial systems. It's a shared digital database where transactions are recorded and visible to network participants, creating a single, trusted source of truth.

Disintermediation

Removes the need for central intermediaries like banks, allowing for direct peer-to-peer transfers.

Smart Contracts

Automates agreements. Code embedded in the ledger self-executes when specific conditions are met.

Tokenization

Creates a digital representation (a 'token') of a real-world asset, making it easy and secure to transfer value.

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Private Cryptocurrencies

The Pioneers (e.g., Bitcoin)

These are currencies not issued by a government or central bank. They operate on public, decentralized networks.

• check_circle Decentralized: Operates on a public ledger (blockchain) without a central authority.
• check_circle No Intrinsic Value: Value is derived from limited supply and market demand, not physical assets.
• check_circle Extremely Volatile: Prices can fluctuate dramatically, making it a poor store of value.
• check_circle Pseudonymous: Transactions are public but linked to anonymous addresses, not personal identities.

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Central Bank Digital Currencies

The Official Response (e.g., Digital Yuan)

A digital form of a country's official currency and a direct liability of the central bank, intended to modernize the monetary system.

• check_circle Official & Regulated: Issued and controlled by a central authority, unlike private cryptocurrencies.
• check_circle Two Main Types:
  • Retail: A digital form of cash for the public.
  • Wholesale: For commercial banks' reserves.
• check_circle Motivation: Responds to declining cash use and aims to improve payment efficiency, especially for cross-border transactions.

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Stablecoins

Seeking Stability

A type of cryptocurrency that aims to maintain a stable value by pegging it to an external asset.

• check_circle Asset-Backed: Value is typically tied to fiat money (like the US Dollar), commodities (like gold), or other cryptocurrencies.
• check_circle Reduced Volatility: Designed to be a more reliable store of value and medium of exchange than other cryptos.
• check_circle Use Case: Enables fast, global, peer-to-peer payments and acts as a bridge between traditional finance and crypto markets.
• check_circle Regulatory Focus: Attracting significant attention from governments who want to ensure they are properly backed and regulated.

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The Future of Money

Convergence of Technology & Regulation

The future points towards faster, more seamless payments. However, success depends on global regulatory cooperation to ensure these new forms of money are as safe and secure as traditional systems, protecting consumers while mitigating risks like money laundering.