a panel of experts discussed the use of public blockchains for digital money and financial services in general, focusing on their features around tokenization as well as their potential application in the rollout of central bank digital currencies (CBDCs).
The panelists were:
- Pietro Grassano, Business Solutions Director Europe, Algorand
- Scott Hendry, Senior Special Director FinTech, Bank of Canada
- Hugh Macmillen, Chief innovation officer, Instimatch
- Yesika Padilla Yanez, Director of Innovation, Banco Davivienda
The event was moderated by Chris Ostrowski, Managing Director at Digital Monetary Institute (DMI), which, together with Algorand, acted as the main partners of the virtual discussion. The DMI was launched on May 5 as part of the Official Monetary and Financial Institutions Forum (OMFIF), the global central banking think tank.
What Was Discussed?
The panel discussion focused very much on how public blockchains can accelerate the digitization of money and help CBDCs.
Pietro Grassano of Algorand suggested that the blockchain network he represents could be used both in the private sector as well as the public sector, stressing that, assuming there is a debate, Algorand preferred to stay neutral and fulfill the demand for both markets.
He said that while public blockchains are not suitable for the issuance of CBDCs, the rollout process of CBDCs requires a multi-layered infrastructure, part of which should be public, which leaves room for the implementation of open networks like Algorand. Grassano argues that it isn’t necessarily right to endorse the black and white logic when it comes to public and private blockchains, as each type of technology may find its place in large infrastructures involving multiple parties.
Public blockchains have already been successfully used for stablecoins, which inspired central banks to trial the CBDC concept and prepare the infrastructure for their potential issuance. For Grassano, CBDCs and stablecoins can coexist, as they provide many of the same functionalities even though they work differently.
Algorand is currently participating in several tests initiated by central banks to assess the feasibility of retail and wholesale CBDCs. Today, CBDC initiatives are expanding rapidly as the adoption of blockchain for various financial services use cases is putting pressure on governments and central bankers to improve the money system.
Algorand enables private instances in which developers can apply the technology with the features of a permissioned blockchain. Thus, it is currently an ideal technology for a hybrid CBDC model, which can be built on a private instance of Algorand – an open public blockchain.
Besides central banks, blockchain can be used by financial institutions such as investment, commercial, and retail banks. Yesika Padilla Yanez shared her experience of how Banco Davivienda integrated the technology in Colombia.
Initially, the bank tested existing public blockchains to understand the benefits. While it adopted private versions of the technology for risk management and other use cases, it still relies very much on public chains. Interestingly, the clients are not fully aware that the bank is leveraging blockchain due to its complexity, but Banco Davivienda is transparent and makes sure to answer all the questions related to blockchain.
More and more financial institutions are adopting the distributed ledger technology, despite some negative publicity around Bitcoin and other decentralized cryptocurrencies.
Hugh Macmillen of Instimatch doesn’t believe there is a risk that the potential negative publicity around Bitcoin can affect blockchain adoption across financial institutions. In the case of Instimatch – a cash management platform aimed at institutions – the highly regulated environment in Switzerland doesn’t leave room for such risks.
In contrast to Banco Davivienda, Instimatch is relying on a private blockchain. The company recently partnered with Swiss fintech startup FQX to develop eNotes, which represent a disruptive short-term financing and payment tool. Instimatch used to offer trading of unsecured cash deposits within an extensive network of banks, asset managers, insurance companies, corporations, public sector counterparties, and others. With FQX’s technology, the company now provides this new form of electronic promissory notes that are verified and secured by Swisscom and SwissPost on their private, banking-grade blockchain.
In a nutshell, an eNote is a promise to pay a specific amount to another party at a predetermined future date or at a specified time after sight. This financial product can be easily sold and/or transferred to third parties. Hugh Macmillen said that the enforcement regime applicable to eNotes is recognized in more than 165 countries, stressing once again that whatever happens in the crypto world, financial institutions will continue to use blockchain.
https://www.algorand.com/resources/blog/dlt-and-the-future-of-public-blockchains
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