Blockchain’s breakthrough in the payments system

Although 2022 was a turbulent year for cryptocurrencies, the blockchain technology behind them continues to gain prominence in the international financial system. And not just because of the increasingly widespread adoption of cryptocurrencies as a means of payment. In Italy, it will also form the basis of an innovative banking and insurance guarantee platform promoted by the Bank of Italy and the Italian insurance authority.

 

Despite the uncertainty generated by the collapse in cryptocurrency prices during 2022, which plunged the value of terra-luna and led to the bankruptcy of the FTX exchange platform, the implementation of blockchain technology in the global payment system continues its unstoppable advance

The trend is particularly pronounced in countries with low levels of banking penetration or high instability. An example of the former is Nigeria, where only 40% of the population has access to a bank account. The need to carry out digital transactions has caused the adoption of cryptocurrencies in that country to soar to 45% of the population. In Turkey, with an increasingly weak currency and inflation of over 64% in the last year, the percentage of people holding cryptoassets has risen from 25% to 40%.

In general, developing countries tend to be leaders in the adoption of blockchain technology and the use of cryptocurrencies because of weaknesses in their financial systems and low levels of banking. People are primarily looking for an efficient system to make payments and a resource to protect their purchasing power. 

 

An unstoppable advance

Not even measures such as a ban on cryptocurrency transactions, as has happened in Nigeria, are usually effective in slowing down the advance of blockchain. In fact, this African country is still the one where cryptocurrencies are most widely used, with almost half of the population using them. In contrast, it is estimated that only 0.5% of Nigerians use eNaira, the digital currency promoted by Nigeria’s central bank. 

Technological limitations and lack of technical knowledge are often not an obstacle to blockchain’s progress. This was seen in Afghanistan, when the Taliban seized power in August 2021 and the banking system collapsed. For some, cryptocurrencies and other blockchain-based solutions became secure alternatives for receiving and making payments

Without widespread access to smartphones, Sanzar Kakar, founder of a cryptocurrency payment system called HesabPay, turned to cards with QR codes, which merchants can scan to deduct the corresponding funds from the virtual wallet. Their owners can receive money and make payments without the need for traditional banks and without any understanding of blockchain.

 

Also in neighbouring economies

The use of blockchain is also advancing inexorably in the more established economies around us. One example is the creation in Italy of an innovative platform for bank and insurance guarantees based on this technology. It is being promoted by the Bank of Italy and IVASS, the Italian insurance authority. This is the first time that an EU Member State has allowed the use of blockchain in banking and insurance guarantees

As a result, a significant percentage of the bank and insurance guarantees in Italy’s National Recovery and Resilience Plan, which will move hundreds of billions, are expected to leverage distributed ledger technologies (DLT). Blockchain is ideal for such economic programmes because of its ability to enable fast, efficient, cheap, scalable and fraud-proof data transactions

Most central banks are already beginning to assume that they will have to ally with their “enemy”, blockchain-based cryptocurrencies, to retain their dominant position in the international financial system. 

 

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