Through all the innovations amongst the FinTech sector it is fair to say that digital currencies, both centralised and decentralised have become even more popular within today’s society. Although similar to everyday physical currencies in the sense that they are essentially used for the same purpose (for consumers to buy goods) it is still a whole different notion. In this week’s blog, as well as looking into the pros and cons of digital currencies, we explore how much FinTechs role and whether it will become the norm in the future.
Centralised digital currencies, also known as CBDCs (Central Bank Digital Currencies) is a form of digital currency that is essentially produced through the central bank. It is slowly becoming more popular globally and this is mainly to do with the advantages that come with it such as greater financial inclusion as well as convenience and it being easier to keep up with rather than cash. Despite all this, some of the disadvantages that come with the use of CBDCs (Central Bank Digital Currencies) is people’s reluctance to use it.
Within the world of digital currencies there is also cryptocurrency which is decentralised, such as Bitcoin. One of the advantages of Bitcoin and what tends to draw people to it, is the fact that it is encrypted and safe from seizure. Additionally it is accessible at a global level which not only promotes financial inclusion but also financial freedom for those in remote locations. However, even though the advantages promote a slight democratic currency system, it is also prone to quite a few risks due to the lack of clarity on how regulated it is. Furthermore its value is highly changeable in comparison to fiat currencies, not to mention the fact that it may not be accepted as a form of payment in all instances so it can also be seen as quite limiting.
Could it ever become the future?
From looking into the nature of digital currencies and the different types of it like the centralised and decentralised versions, it is evident that FinTech has been a driving force in how they came to fruition. The different types of digital currencies explored in this blog show that both central bank digital currencies and decentralised forms such as crypto do have a lot of advantages to them and a lot to offer the wider public but still have potential risks regarding regulation, limitation factors and how trustworthy they are.