The Central bank-owned global financial institution, the Bank for International Settlements (BIS), has released a quarterly report that has drawn a number of interesting conclusions around the growth and adoption of cryptocurrencies, especially in relation to the ongoing excitement on Central Bank Digital Currencies (CBDC) and tokenization.
It is getting harder and harder to ignore the growing drive towards CBDCs from banks across the globe. The excitement truel started with China and its drive to launch its own cryptocurrency, but since the World Economic Forum in Davos, a number of other banks have flashed their interest.
Now, the BIS has had a deeper look at this growing interest in CBDC across the globe and has admitted that foundations are being laid for more systematic discussions. More so, the BIS also talks about the technical considerations for a CBDC and consumer needs.
A change of tune
Much like the general cryptocurrency space, time has made it a more attractive prospect to the mainstream institutional players. At first there was very little interest in the industry from banks and major enterprises, now it is nearly impossible to find a big business that is not at least looking into blockchain.
The same thing has happened with the growth of CBDCs. At first, central banks saw no need for such a tool, but with the digitization of money and the advancement of technologies, an arms race of some sort seems to be emerging.
Of course, as if often the case with banks, the movement in this space is slow and methodical and only seems to be coming around with much consideration.
In the report, the BIS puts forward three potential architectures for CBDCs. They see indirect, direct, and hybrid models. Indirect CBDC involves a tiered structure that relies on various banks, while the central bank handles wholesale payments while direct involves only the central bank, and the third is a hybrid of the two systems.
A nod to tokenization
Another area of the cryptocurrency ecosystem that is now on the BIS radar is that of tokenization. The BIS has identified that tokenization of securities can be considered a new major application of emerging fintech solutions like cryptocurrency, but it holds special potentials and risks.
Tokenization, according to the report, can reduce costs and complexities in clearing and settlement, but there are concerns as smart contracts have yet to prove themselves for clearing and settlements, something that will have to be monitored over time.
