How Will Blockchain Technology Transform the Current Monetary System?

The current monetary system

DLT-based crypto assets

Advantages of DLT

  • There is no need for an intermediary anymore who verifies the transactions. This makes the global payment system less complex, more efficient and cheaper: 0–1% vs 2–5% transaction fees [9].
  • Higher settlement speed: After 10 minutes, transactions are verified by saving them in a new block. After 60 minutes they are safely stored in the blockchain vs. settlement after several days with conventional technologies [8]. Other DLTs with different consensus mechanisms than the proof of work mechanism can settle even faster and not only probabilistic but atomic.
  • Higher resilience since there is no single point of failure vs. a single point of failure at the central bank or bank in conventional centralized systems [8].
  • Smart contracts enable the programmability of money. Programmable money can trigger payments when defined conditions are met [10]. These smart contracts provide tremendous efficiency gains as business processes get highly automated.
  • Permissionless blockchains can create anonymity and censorship-resistance vs. surveillance [11]. Anonymity can also be reached by permissioned blockchain systems as shown by a recent working paper by the ECB which proposes “anonymity vouchers” [12].

Fiat-backed stablecoins issued by the private sector

Central bank digital currencies

Motivations for a CBDC issuance

Wholesale vs. retail CBDC

Current retail CBDC projects

How can DLT change the current monetary system?

Figure 1: Typology of programmable money (Source: own illustration)

Conclusion

Remarks

  • Blockchain knowledge: We wrote a Medium article on how to acquire the necessary blockchain knowledge within a workload of 10 working days.
  • Our two blockchain books: We have edited two books on how blockchain will change our society (Amazon link) in general and the everything related to finance (Amazon link) in particular. Both books are available in print and for Kindle — currently in German and soon in English. The authors have been more than 20 well-known blockchain experts in startups, corporations and the government from Germany, Austria, Switzerland and Liechtenstein — all contributing their expertise to these two books.
Our two books: the first one on blockchain and the society and the second one on blockchain and finance

Authors

Bibliography

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Professor | Lecturer | Author | Investor | Frankfurt School Blockchain Center

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Philipp Sandner

Philipp Sandner

Professor | Lecturer | Author | Investor | Frankfurt School Blockchain Center

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