Growth and jobs | The Future of Money: The 101 on Digital Currencies | News

GIVEN THE recent launch of the Bank of Jamaica (BOJ) digital currency pilot project and the generally positive performance of cryptocurrencies in the global market, many Jamaicans have become interested in the new modern method of exchange.

However, many people may still not understand the concept of cryptocurrencies and Central Bank Digital Currencies (CBDCs), and what this BOJ decision means for the ordinary citizen.

Here is the 101 on digital currencies:

WHAT ARE DIGITAL CURRENCIES?

Ricardo Dystant, Head of Digital Transformation and Special Projects at JN Bank, explained that digital currency, similar to cash, is a mode of payment or medium of exchange, except in digital form. He further informed that some digital currencies are regulated like in central bank digital currency while others are unregulated like bitcoin which is a cryptocurrency.

CRYPTOCURRENCY VERSUS CENTRAL BANK DIGITAL CURRENCY

Dystant explained that all cryptocurrencies are digital currencies, but not all digital currencies are cryptocurrencies. Essentially, digital currency is a general term that can be used to describe different types of currencies that exist in the electronic realm. Basically, there are three different types of currencies: cryptocurrency, virtual currency, and central bank digital currency (CBDC). Virtual currencies are unregulated digital currencies controlled by developers or a founding organization made up of various stakeholders involved in the process.

“Cryptocurrencies are unregulated and decentralized, which means they don’t have the backing of any government or central bank. Some people may find this attractive, but for others it could be a downside, as cryptocurrency rates are very volatile,” the JN Bank executive remarked.

Dystant noted that bitcoin and other cryptocurrencies have been quite unstable for much of their history. For example, nerdwallet.com reported that while bitcoin was trading near US$20,000 in December 2017, its value fell to around US$3,200 a year later.

However, in December 2020, it was again trading at record highs.

According to the market research website CoinMarketCap.com, over 17,000 different cryptocurrencies are publicly traded, the most popular being bitcoins. Others include Ethereum, Tether, BNB, and USD coin. The total value of all cryptocurrencies at the end of January 2022 stood at approximately $1.7 trillion, having fallen significantly from an all-time high of over $2.9 trillion at the end of January. 2021.

“On the other hand, CBDCs are essentially electronic forms of currency issued by the government or a central bank of a country, for example the BOJ,” Dystant said. He informed that CBDCs are regulated and have the backing of a governing body, which makes them much safer in the eyes of some critics. “CBDC rates are stable and [these] currencies are accepted worldwide,” he said. “Basically, the CBDC is just another form of currency issued by the central bank; one is in physical form and the other is electronic or digital.

Jamaica joins a list of countries that have also launched their own digital currency, including several Eastern Caribbean countries, Nigeria, China and Sweden. CBDCs have a utility similar to that of physical currencies. They can be used to purchase goods and services.

HOW TO CONVERT PHYSICAL MONEY INTO DIGITAL CURRENCY?

While some cryptocurrencies, including bitcoin, are available for purchase with US dollars, others require you to pay with bitcoins or another cryptocurrency.

To buy cryptocurrencies, you will need a “wallet”, an online application that can hold your currency. Usually you create an account on an exchange and then you can transfer real money to buy cryptocurrencies such as bitcoin or ethereum.

When it comes to the CBDC, the purchase method is similar. Dystant explained that a digital wallet is like a bank account that holds the value of your cybercash.

“The wallet provider may offer you an app for your mobile device, or you can log into a website to access your account. You can then purchase your e-money using a credit card,” he said. informed.

BENEFITS OF CENTRAL BANK DIGITAL CURRENCY

Dystant noted that among the benefits of e-currencies are the fact that they enable seamless transfer of value and can reduce transaction costs.

Digital currencies also enable instant transactions that can be executed seamlessly across borders. For example, it is possible for someone located in the United States to make digital currency payments to a counterparty residing in Singapore, as long as they are both connected to the same network.

Dystant pointed out that since digital currencies usually exist within the same network and make transfers without intermediaries, the time required for transfers involving digital currencies is extremely fast. “Because digital currency payments are made directly between trading parties without the need for intermediaries, transactions are usually instantaneous and inexpensive,” he said.