Difference between a cryptocurrency and e-money

Source: Visual capitalist

What is a digital wallet? 

According to Bankrate in the US:  “Digital wallets are exactly what they sound like: a digital version of your financial accounts made easily accessible via computer, smartphone or smart device that ultimately eliminates much of the need to carry around an actual wallet. Apple Pay, Google Pay, and Samsung Pay are probably three of the most popular digital wallets, but there are quite a few others. Some other popular digital wallets include PayPal and Venmo, both of which are uniquely social by allowing you to easily send money to retailers and friends”.

Whilst the concept of a digital wallet and, indeed, paying for goods and services electronically has been around for a while, a digital wallet that enables one to buy and sell using Digital Assets (such as cryptocurrencies) is relatively new. The digital wallets allowing transactions using Digital Assets come in two formats:

• Hot wallets - where your assets are kept on-line. Arguably less secure as since they are on-line, they can be hacked.

• Cold wallets - are hardware devices not dissimilar to a USB stick, holding a record of the Digital Assets you own. Are more secure as they are only on-line when you plug them into a computer/laptop.

Source: Business Insider

Both types of digital wallet do not actually hold your Digital Assets in the same way that a paper wallet holds physical cash but can be seen as a way to access those of your assets which are held on a blockchain. The range of Digital Assets is expanding, so digital wallets are not only used for cryptocurrencies but also for Central Bank Digital Currencies (CBDC), Non-Fungible Tokens (NFTs) and, increasingly, other real assets now being offered with a ‘digital wrapper’. As the infrastructure and regulation is clarified in different jurisdictions, we are seeing digital wrappers being applied to traditional fiat currencies such as £, $, CHF, Yen, € etc, and to other assets such as equities, bonds, commodities, real estate etc. 

The on-line stockbroker, Robinhood, was only established in 2013 in California but already has over 22.5 million customers. Robinhood is set to launch its own digital wallet whereby making the trading and storage of cryptocurrencies and other Digital Assets much simpler, and has recently reported that over 2 million  people have registered with it to open a digital wallet. However, this pales into insignificance compared to the number of people who own a Chinese central bank digital Yuan wallet, since there are over 260million of these. The digital Yuan, officially known as the e-CNY and issued by the world’s second largest economy, has been in the development phase since 2014 and is set to be launched at the Winter Olympics in Beijing which is starting on 4th February 2022.

The e-CNY app seen in Apple’s App Store atop a Yuan banknote

Source: South Chinese Morning Post

87 countries which represent over 90% of global GDP are developing digital currencies, which are more accessible for people without bank accounts. But there are concerns with CBDC. For example, in jurisdictions such as China, they could be used to automatically fine citizens for disallowed activities such as jaywalking (where facial recognition cameras are already being used to send fine notifications via text). The Chinese claim their state-run digital wallet will not replace the hugely popular payment apps such as Alipay or WeChat Pay, however, those providers cannot be used at the forthcoming Olympic Village, whilst China’s digital-wallet can be….

On a personal note, if you have not already obtained a digital wallet for your Digital Assets, it is likely that it will not be long before you do!

This week welcomed the Chinese New Year and it looks like the Year of the Tiger will be important for China, and indeed Digital Assets in China, as the Chinese launch their new Central Bank Digital Currency (CBDC) at the Beijing Winter Olympics.

Happy Chinese New Year

Source: Sun Signs

Although the new Chinese CBDC will not be run on a blockchain (as it controlled and run only by the Chinese government), the Chinese are embracing Blockchain technology with the announcement this week this week that a series of cities (including Beijing and Shanghai), government data-sharing and services, law enforcement, taxation, criminal trials, inspection, copyright, civil affairs, human society, trade finance, risk control management, equity market and cross-border finance, universities, banks, and manufacturing and utility firms are to be included in the 164 entities to carry out trials using Blockchain technology. This announcement follows on from the South China Morning Post which reported that China is planning to launch Blockchain-based Service Network (BSN) non-fungible tokens (NFTs). 

BSN partners

Source: BSN

The BSN is to be government-backed on a blockchain supported by the State Information Centre, Red Date, China Mobile and China UnionPay. NFTs are to be denominated in Chinese Yuan and so potentially giving another reason why China is to launch its CBDC. BSN will create two networks, one for inside China and one for international users and, as a way to differentiate itself from NFTs, BSN will issue a ‘Decentralised Digital Certificate’ (DDC) and not an NFT. The cost to create a DDC could be as low as $1 (which is highly competitive) since according to Being Crypto, NFTs can cost between $1 to $500. The BSN platform is expected to be officially launched in March 2022, so we will be keeping an eye on how successful it is.

Given the Chinese have historically been large collectors of all types of assets, will we see BSN dominate the DDC/NFT market or will we see a range of DDC version NFTs being created and sold exclusively for the Chinese citizens? Hence, instead of an NFT being a unique digital representation will there be two Digital- styled NFTs, one as an NFT sold and traded outside of China for the rest of the world, and the other NFT being created as a DDC for sale only in China?