It was recently reported that Visa, a former member of the Libra Association, has filed a patent application to create digital currency on a centralized computer using blockchain technology. This patent is for a digital dollar as well as other central bank digital currencies (CBDCs) across the globe. The application to the U.S. Patent and Trademark Office (USPTO) describes this as a ‘Digital Fiat Currency.’
But what will Visa’s plans for entering the digital currency market mean for the digital assets economy at large? We have gathered commentary from industry experts including AVA Labs, Securrency, and Interchain Foundation.
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Implications For Visa's Plans Around CBDCs
John Wu, President at AVA Labs commented:
"Physical fiat currency is increasingly becoming a relic of the past – a trend which the COVID-19 pandemic has seemed to accelerate – so it's no great surprise that incumbent payment platforms are developing digital currency solutions that mirror the boom in decentralized finance applications from the open source ecosystem.
It’s clear that a fundamental restructuring of legacy payments and financial infrastructure is not only warranted, but overdue. Institutions unwilling to adapt will risk being phased out of a new market structure centered around velocity, efficient use of capital, and resiliency against security breaches at single points of failure.
The specifics of Visa’s plans remain to be seen, with significant questions as to the level of decentralization it would permit on any potential platform. But, it represents another indicator of the deep structural shifts taking place in our financial infrastructure."
Patrick Campos, Chief Strategy Officer at Securrency commented:
“The transition to blockchain-based digital formats is not a new development. Most large institutions and incumbent payments platforms have been exploring blockchain for years and, as can be seen by this filing, quietly building out their capabilities and carefully planning their entry into the space. If anything, this demonstrates that the incumbents recognize that the transition to blockchain-based digital formats is a matter of fact rather than theory.
The full impact of this development remains to be seen, as Central Bank Digital Currencies (CBDCs) are complex animals that require collaboration across many government and private sector entities, and a patent filing of this nature may often be defensive in intent. Nonetheless, it points to three important developments that we can confidently anticipate. First, the pace of development of blockchain-based payments, already accelerated by the Covid-19 situation, will pick up additional steam on this news. Second, we are well into a period of significant consolidation in the space and Visa’s announcement will likely increase the sense of urgency felt by both acquirers and targets. Finally, and perhaps most importantly, this will further solidify the legitimacy of digital assets in the global financial markets.
The news may also have implications for plans around CBDCs, by validating state-led CBDC initiatives and at the same time sharpening the focus on the alternative methods of deploying CBDCs. Visa’s patent filing, for example, contemplates a “sunset” of physical currency (defined in the filing as “the removal of physical currency from circulation in the fiat currency system”). While this is not an approach that is universally embraced by policy-makers and certainly carries with it some significant social implications, it does highlight the challenges of accounting for the two different forms of currency. Similarly, Visa’s proposed serialization of the digital dollar will further intensify the debate over privacy issues raised by CBDCs.”
“Understanding the implications of Visa’s plans for developing a digital currency really depend on the details of their approach. The underlying technology should be open-source to be as accessible to innovation as possible. If that’s supported by incumbent payment providers, that’s great - they hold the expertise and could bolster innovation. But if certain private companies gain specialized rights to augment the system or access its data — that could create problems.
We need to avoid replicating the current financial system using better infrastructure. While digital currencies are a step in the right direction, and may help to significantly reduce barriers for individuals and small businesses to access financial services, we need to think more systematically about monetary structures and the control of monetary policy, especially in regards to how these structures reflect values in our society.
We’re currently witnessing an enormous failure in money’s ability to value things, with the collapse of the stock markets and the sudden realization that many forms of minimum-wage and low-wage work are somehow far more essential (“valuable”) to society than many other forms of labor. Our monetary system needs to better account for more local forms of sustainability and self-sufficiency -- properties that are increasingly critical to our civilizations.”