The British public is apparently quite keen on the general idea of digital alternatives to the current card, cash and account payments infrastructure. A recent poll found that almost a third of British consumers “intend to use” cryptocurrency as a form of payment this year, although it wasn’t clear to me how or what for. In a similar vein, almost half of British consumers say that they “trust brands who accept crypto payments” but I’m not sure why, since almost all of them have never used crypto to pay for anything in a branded context or otherwise.
Overall, I have to say that I find these results surprising for a few reasons although I’m not sure that it really matters since I’m not sure it is wise to listen to UK consumers.
(The British public is, by and large, wrong about nearly everything. For example, a quarter of them think that Sherlock Holmes was a real person. I’m not sure I’d listen to the American public either because a quarter of them think that the Sun goes around the Earth.)
The limits of public opinion
Asking the public for their opinions about something they don’t understand (i.e. almost anything) therefore seems somewhat pointless to me, a bit like it would have been surveying people about what they wanted from social media in the days of bulletin boards and dial-up modems, but there you go.
Personally, I find the idea that a third of UK consumers intend to use “crypto” as a form of payment far-fetched to say the least. Most people hold cryptocurrency as a speculative investment if they hold it at all and if they genuinely think that it is going to the moon they are not going to waste it on pizza. Even if they do want to spend it, it is time-consuming and more inconvenient to use than almost any other means of payment bar cowrie shells.
One of the things that people did actually buy with cryptocurrency was a non-fungible token (NFT) of some kind but even in that exciting sphere of innovation, the volume has collapsed. Almost six billion dollars went on NFTs in January (although who was buying what and from whom is not obvious in many cases) whereas not even a billion was spent on them in July. The JPG NFT Index that tracks the “blue chip” (I’m not sure how defined) projects have fallen by half since April and the floor price of those cartoon apes often flogged by celebrities has similarly plummeted.
I suppose it might be possible that a third of the population thinks that they will use a cryptocurrency of one form or another to buy a picture of a chimpanzee with sunglasses on, or some similar investment, but I really do not think they are envisaging using it in the supermarket or the fast food outlet.
In a similar spirit (of questioning people for their opinion about something they don’t understand), the US Federal Reserve invited public comment on a digital dollar — the Cato Institute has looked over more than 2,000 responses to this invitation and found that two-thirds of object to the idea — and the European Central Bank (ECB) has also been asking consumers what they want from a digital currency despite the fact that the Bank itself noted that the consumers they surveyed “demonstrated little knowledge of the digital euro”.
I’m not sure whether to pay any attention to the findings of a survey of people with little knowledge, but I will note that their given opinions included a strong preference for payment methods with pan-European reach, universal acceptance, the possibility of instant and contactless person-to-person payments “regardless of the platform or device” and a one-stop-solution that would incorporate all the current payment options into “one system”.
Those sound more like the ECB’s desires than those of baffled consumers who do not know what a digital currency is, but they seem reasonable enough. I am unconvinced that universal acceptance, at least in the foreseeable future, is either desirable or necessary but instant contactless person-to-person payments sound useful. I might have added the caveat that they must work offline, a point I will return to shortly, but the general principle is good.
More than one digital system needed
I am nervous about that final reference to “one system” though. On this point, I must respectfully disagree with the European public because the overall reliability, resilience and capability of the European payments infrastructure would be significantly enhanced by creating a new and parallel digital currency system rather than adding a digital currency layer to what is already there.
Central banks must, of course, be careful to design availability into any system because even small reductions in overall payment system availability have very significant consequences. DCash — the digital currency used by seven Caribbean nations — was down for a few weeks earlier this year. Clearly, that’s not really acceptable for a population scale cash replacement, which must have five nines availability.
This why one of the great attractions of building a new parallel digital cash infrastructure, instead of just laying a simple peer-to-peer protocol on top of the existing digital money infrastructure, is that it would add to diversity and create that kind of resilience in the payment system.
Declaration of independence
Let us return to that issue of offline use that is missing from the current infrastructure and should be central to the new one. It is not just that any form of national digital currency must work offline, but that it must work independently from both the existing electronic money infrastructure and the existing cash infrastructure.
This independence is the key means to increase overall resilience, because the failure of any one of these infrastructures should not impact the others. If the ATMs go down, people should be able to use their digital cash. If the digital cash system goes down, people should still be able to their digital money (eg, debit cards). And if the digital money system goes down, people should be able to use their digital cash.
Digital money systems do go down from time to time. Just a couple of weeks ago, Canadians found they could not get cash from ATMs, use debit cards in shops or access internet banking because the Rogers network went down after a bungled software upgrade. The failure also took down the e-transfer service, through which Canadians send money directly from their bank accounts to the accounts of other consumers and businesses, using their email address or mobile number.
Similarly, cash’s limited ability to function as a backup to digital money was shown clearly here in Kazakhstan when people found that digital money was useless when the internet went down and cash didn’t work either because there were long queues for ATMs (which had withdrawals capped because of shortages of notes).
Offline digital cash
These and other incidents suggests to me that it will not be enough for central banks to develop an online digital currency transaction network while treating cash as the offline back-up. It should be offline digital cash that is the backup that continues to work when there is no internet, no mobile network and no electricity network.
This is one of the aspects of central bank digital currency (CBDC) design that most interests me. Some innovative thinking will required to deliver a genuine cash alternative into mass markets and my strong suspicion is that it will depend on the use of secure, tamper-resistant hardware. This is how Mastercard’s pioneering Mondex system worked many years and how Visa’s proposed Offline Payment System (OPS) would work and what IDEMIA and others are experimenting with at the moment.
Now, obviously, there must be limits on the amount that can be stored in wallets or transferred between them (for all sorts of reasons, ranging from security to consumer protection) but it is entirely feasible to implement schemes that allow for offline device-to-device transfer so that people can still buy a cup of tea when the internet is down or still buy food at the supermarket when the electricity is out. This is the smart way forward for digital currency.
It is because I am so interested in off-line device-to-device transfers that I read with great interest the news that Dutch bank ING is piloting a peer-to-peer payments app that uses ultra-wideband (UWB) technology to let users transfer money by simply pointing one handset at another. They are working with Samsung and NXP Semiconductors on the ‘Near’ app to implement these payments for consumers.
I have explained before that UWB means interesting new products and services. Just to recap, UWB is not really a new technology. The IEEE (Institute of Electrical and Electronic Engineers) standard on UWB (802.15.4) came out many years ago, but it never really gained traction for communications. WiFi worked well enough and it got faster pretty quickly, but there was a pivot when engineers found that the radio pulses that UWB uses have an interesting characteristic: they allow devices to determine location very accurately indeed. Much more accurately than you get from signal strength estimation (as with Bluetooth proximity applications).
This means that with UWB it is possible to measure the distance to a couple of inches and since apps can get this information a few times every second they can also tell whether another device is stationary, approaching or receding.
Digital currency is coming whatever the public thinks
The technology already started to make inroads into the world of payments when the Japanese operator NTT Docomo teamed up with Sony and NXP Semiconductors to trial technology that lets shoppers make NFC payments without having to take their phones out of their pockets. They are using UWB to follow user movement and positioning with a location accuracy of a few centimetres. This took UWB into the transaction space, alongside the existing Wifi, RFID/NFC and Bluetooth links.
Whatever the public thinks, digital currency is coming and some innovative thinking will be required to deliver it as a genuine cash alternative to mass markets. My strong suspicion is that such a currency will depend on the use of secure, tamper-resistant hardware such as the Trusted Executions Environments (TEEs) in mobile phones and laptops and so on. China has opted for this kind of architecture, providing TEEs in the form of smart cards for citizens without smartphones, and I am sure that other advanced nations will follow.
UWB adds another option to the toolkit: a super technology for secure and convenient TEE-to-TEE value transfer and surely it is only a matter of time before it is used for digital currency of one form or another.