IMF: Network Effects Could Spark Blaze of Crypto-Currency Adoption (#GotBitcoin?)
The International Monetary Fund (IMF) has argued that network effects could spark the blaze for the mass adoption of new digital monies. IMF: Network Effects Could Spark Blaze of Crypto-Currency Adoption (#GotBitcoin?)
In a fresh report published on July 15, the IMF aims to create a conceptual framework for categorizing new digital monies such as Facebook’s Libra and stablecoins as well to think through the implications of their emergence for central bank policy.
In its analysis of e-monies — including but not limited to blockchain-based assets — the IMF identifies six factors that could drive their rapid growth for payments: convenience, ubiquity, complementarity, low transaction costs, trust and network effects. The report states:
“The first five reasons may be the spark that lights the fire of e-money; the sixth is the wind that could spread the blaze. The power of network effects to spread the adoption of new services should not be underestimated.”
To bolster its claims, the IMF points to the rapid switch from email to SMS and from SMS to social messaging platforms such as Whatsapp, noting that adoption of the latter was exponentially faster than the initial switch to email — noting that its 1.5 billion user base is attributable more to word of mouth than to formal marketing strategies.
The IMF also creates a taxonomy indicating its view of the thriving digital money sector, notably adopting the blockchain industry’s cornerstone principle of decentralization as one of its principle classificatory parameters.
Devoting a section of its analysis to the question of central bank digital currencies (CBDCs), the IMF proposes a hybrid approach that would be established by a public-private partnership — defining the proposed asset as a synthetic CBDC (sCBDC).
A central bank would have limited responsibility as regards a prospective sCBDC, offering settlement services — including access to its reserves — to e-money providers, who would, in turn, be robustly regulated. This hybrid — and not full-fledged — sCBDC would stand to benefit from the comparative advantage of the private sector to innovate and interact with consumers while relying on the central bank to provide trust and efficiency, the report argues. The IMF concludes:
“Much lies in the hands of central bankers, regulators, and entrepreneurs […] but one thing is certain: Innovation and change are likely to transform the landscape of banking and money as we know it.”
This spring, the IMF managing director Christine Lagarde said that blockchain innovators are shaking the traditional financial world and having a clear impact on incumbent players, having previously acknowledged that the organization could potentially release its own digital asset in future.
Crypto and Blockchain Adoption Grows: 5 Important Developments Sept. 2–8
Analysts have long predicted that the increased participation of governments and institutional players in the blockchain and cryptocurrency space shows how the respective industries are maturing. The founder of crypto merchant bank Galaxy Digital, Michael Novogratz, recently said that the next up-move of the cryptocurrency bull market will be driven by institutional investors.
Last week we saw several stories of major firms getting more involved in blockchain technology and cryptocurrencies, pointing to further acceptance and adoption of digital assets and their underlying blockchain technology.
1. PwC Luxembourg To Start Accepting Bitcoin Payments
The Luxembourg branch of the Big Four auditing firm PwC announced that it will begin accepting payments in Bitcoin (BTC) starting on Oct. 1. The firm states that its decision to open up to crypto payments is part of a commitment to clients’ needs as well as to support the growing cryptocurrency industry.
2. Japanese regulator grants cryptocurrency exchange license to LINE subsidiary
Japan’s financial watchdog agency, the Financial Services Agency, awarded a cryptocurrency exchange license to LVC Corporation, the digital asset- and blockchain-focused arm of Japanese messaging giant LINE. Japan has shown a progressive attitude toward cryptocurrencies, with top executives and government officials getting involved in shaping the space.
3. Hsbc Uses Blockchain Platform To Issue Letter Of Credit
On Sept. 2, banking and financial services giant HSBC completed the first yuan-denominated letter of credit transaction on a blockchain. The firm used blockchain software firm R3’s Corda-powered Voltron platform for a cross-border transaction, in which electronics manufacturer MTC Electronics exported a shipment of LCD products to its parent firm.
Blockchain technology is gaining traction in the financial services industries, as it can reduce transaction times, costs and provide a more secure and transparent account of contracts and financing.
4. National Cryptocurrency In The Marshall Islands
Minister In-Assistance to the President and Environment of the Marshall Islands David Paul recently released an essay in which he described the nature of the nation’s forthcoming national digital currency, the Marshallese sovereign (SOV). By issuing the SOV, the government aims to make Marshallese monetary policy more independent, as it currently uses the U.S. dollar.
The government has decided to base the digital currency on a blockchain protocol because it does not think a centralized structure is suitable for a small country of 50,000 people spread across over 1,000 Pacific islands.
This example of blockchain adoption shows how the technology can solve real economic issues, even at the national level.
5. Reports Of A Cryptocurrency-Enabled Samsung Phone
A report from the Wall Street Journal (WSJ) on Sept. 5 states that the newest version of Samsung’s Galaxy Note 10 will feature a feature a cryptocurrency wallet and accompanying free coins. Sources familiar with the matter told WSJ that South Korean tech giant Kakao Corp. will issue its affiliate cryptocurrency KLAY directly to Samsung smartphone users.
The expansion of cryptocurrency capabilities on a widely circulated telephone has the potential to bring more people into the cryptocurrency space and simplify the use of digital assets by the uninitiated.
IMF: Network Effects Could, IMF: Network Effects Could