Previously, the belief used to be that money can only be exchanged physically. However, with the digital revolution setting in, the world seemingly got hold of the ‘digital’ take on currencies, which are categorised as central bank digital currencies (CBDCs), and cryptocurrencies, among others. Blockchain’s introduction is considered to be a game-changer for the financial technology (fintech) landscape, as it has paved the way for transactions beyond boundaries and without third-party entities. Now, the question is what exactly does the future of digital currencies hold? Well, market experts believe that they are key to the creation of new financial prospects. “I believe expectations from digital currencies, including cryptocurrencies, DeFi, and CBDCs, involve adoption and integration into mainstream finance. Cryptocurrencies are likely to continue as investment assets, while DeFi is expected to expand, offering services. CBDCs may enhance financial inclusion and improve cross-border transactions. Regulatory frameworks will likely evolve to balance innovation with consumer protection,” Sumit Ghosh, co-founder and CEO, Chingari, a Web3.0 live streaming application, told FE TransformX.
From what it’s understood, the world is gearing up for the next stage of digital transformation through CBDCs. Numbers provided by the Atlantic Council, a nonpartisan organisation, have shown that 130 nations, constituting 98% of global gross domestic product (GDP), have started to work around CBDCs, and that 64 more countries have reached the advanced stage of CBDC exploration. Reportedly, 19 of the G20 countries have reached the advanced phase of CBDC creation, and 11 countries have completely enabled a digital currency. For example, China’s experimental digital currency, which has a range of roughly 260 million citizens, has undergone trials in more than 200 scenarios. With regards to India, the Reserve Bank of India’s (RBI) Handbook of Statistics had shown that Rs 16.39 crore amount of e-rupee was in circulation for March, 2023. The total amount of e-rupee was segregated into Rs 10.69 crore for wholesale CBDC and Rs 5.7 crore for retail CBDC. In a letter, dated December 29, 2023, written by RBI’s governor Shaktikanta Das to staff mentioned that the total amount of e-rupee transactions had crossed one million during a day on December 27, 2023. Other financial institutions such as Bank of International Settlements (BIS), European Central Bank, International Monetary Fund (IMF), among others, have and are expected to further contribute towards how CBDCs function in cybersecurity, cross-border transactions, and financial balance. Statista, a data and business intelligence platform, estimates that CBDCs’ transactional value will rise by 260,000% for 2023-30.
When the conversation steers towards cryptocurrencies and DeFi, the decentralised factor around digital currencies comes into the picture. It’s believed that throughout the years, cryptocurrencies have been characterised as ‘extremely volatile,’ mainly Bitcoin (BTC). However, based on how BTC panned out in 2023, 2024 seems to be a different year. According to Flatworld Solutions, an outsourcing services company, BTC investors expect that around 94% of different kinds of BTC will be released by 2024. Signs suggest that cryptocurrencies’ popularity, as a digital currency, will grow on account of the recorded behaviour of technology-savvy companies and individuals. Despite implications surrounding Sam Bankman-Fried’s FTX debacle, along with Changpeng Zhao quitting Binance over money-laundering allegations, media reports have shown that BTC recorded an approximately 165% rise in value and Ether (ETH) clocked a nearly 84% increase in value, for the period January 1 to December 20, 2023. While cryptocurrencies are considered not to find common ground amongst nations, stablecoins have appeared as a more likely candidate to sustain the digital currency race. The 2023 stablecoin market has been at the receiving end of developments, due to factors such as the Financial Stability Board’s (FSB) suggestions for worldwide stablecoin regulations and the G20 forum’s crypto roadmap for a global regulatory framework around crypto assets, including stablecoins. Sources suggest that the United Kingdom’s Bank of England (BoE) and Financial Conduct Authority (FCA) intend to complete drafting stablecoin-oriented regulations by 2025.
“I think the involvement of institutional investors and financial institutions in the crypto and DeFi space could lead to a diversified investment portfolio of products and services such as the Blackrock BTC ETF and the BTC halving, which is scheduled to take place in May, 2024. Let us also not forget that promotion and greater adoption of CBDCs could be considered the first step to promoting crypto. Engaging with industry experts, technologists, and stakeholders in the crypto and DeFi space is considered crucial to ensure that regulations that come into effect do not deviate from the main objective of making financial profits, but at the same time ensure that risks associated come down to almost none,” Roshan Aslam, co-founder and CEO, GoSats, a BTC rewards application, highlighted.
Going forward, data provided by Market.US, a market research firm, has predicted that the global digital currency sector will be worth roughly $76.9 billion by 2032, at a 12.13% compound annual growth rate (CAGR) between 2023-32. Market expectations have shown that the development of cryptocurrency-based regulations and an increase in the global CBDC count, along with cross-chain interoperability, will be crucial to ensure the future of digital currencies. With time, technologies such as artificial intelligence (AI), machine learning (ML), Internet of Things (IoT), among others, are expected to find their way into the digital transformation journey of money. “2024 should be a monumental year for crypto. We are looking at a potential bull market with a systematic price surge. For digital assets to become payment mechanisms, the market has to mature and liquidity has to improve. However, B2B payments in niche sectors, retail payments in few luxury segments, among others, could see crypto being used as a payment instrument. CBDCs should see some traction next year. In India, we expect that the budget session provides tax relief by reducing the TDS percentage to 0.01% and also allocate the resources for growing domestic blockchain projects,” Nischal Shetty, co-founder, Shardeum, a layer-1 blockchain, concluded.