Cashless economy leads to digital payments, digital payments to alternative methods, and alternative methods to Utility Tokens

Nicola Facciorusso
Dec 9, 2018 · 6 min read

A Wake-Up Call

The share of the cashless economy in the global payment industry is accelerating earlier than expected. In Europe, some countries are conforming to cashlessness and adapting digital payments with an increasing number of cashless-transactions per capita, substantially more in the Nordic region.

However, too many reports note that cash is still the predominant payment-form in Germany, regardless of 134 million cards with electronic payment functionality distributed among 61 million adults (average 2.2 cards per consumer versus 1.6 in the EU), with access to 1.2 million payment terminals. Moreover, Germany is the second largest EU-country for cashless revenues, and the third by executed cashless transactions.

While the number of non-cash payments in Europe was projected to increase from 70 to 177 billion euros (STATISTA) from 2005 to 2020, the three EU member states with the most cashless payment transactions in 2017 were representing more than 80% of the total EU-data (source STATISTA):

106.6 trillion Euro revenue
30 billion transactions

55.8 trillion Euro revenue
21 billion transactions

27.2 trillion Euro revenue
22 billion transactions

ATKEARNEY estimates that in Europe by 2022 cashless transactions will exceed cash, with alternative payment methods increasing their market acceptance among consumers: from 128 billion cashless transactions in 2015 (hereof 4% alternative methods) to 238 billion in 2025 (12%).

Blockchain technology holds strong promise for financial markets. To remain competitive, Europe must embrace and actively partake in its continuous innovation. In addition, crypto-currencies, which are not currencies in the traditional sense, have become a subject of considerable speculation due to lack of stability and safety in value. This exposes consumers and investors to the substantial risk of losing their investment.

Another pivotal aspect for the role of alternative digital payments in Europe is the expected legal framework of the current chaotic environment for crypto-currencies and Tokens prepared by the European Commission, still to be ratified in 2019 by all EU countries.

European Commission (EC) VP Valdis Dombrovskis while acknowledging that European nations should embrace blockchain technology in order to remain competitive in financial markets, also cautioned that steps should be taken to protect their citizens from hazards in the cryptocurrency space. The framework will hence allow financial authorities to regulate and govern both cryptocurrencies and Tokens at similar levels as of all other financial products.

The prevailing and unavoidable anarchy for distributed Tokens is keeping away regulated institutional investors from investing along with billions of end-users, both B2B and B2C from using cryptocurrencies for their respective purposes.

Why Security Tokens Aren’t The Disruption

In the EU there are more than 20 Proof-of-Stake (PoS) card schemes and more than 200 alternative payment methods. In the growing cashless economy, Utility Tokens of digital payment providers are bound to become the further encrypted, standardized digital alternative payment methods used by merchants and consumers for Mobile Payments and Digital Commerce.

The business model of Utility Token issuers operating on decentralized open protocols represents an unprecedented competitive and innovative advantage to adversaries that are yet to abandon centralized and expensive business models. In this regard, the commonly used “Security Token” will play a minor role. As an unavoidable regulated financial instrument, it represents only a theoretical “whitepapered” concept and not a real business with a tracked record of sales and profit as in the case of company shares listed on stock exchanges, thus a fair evaluation of “Security Tokens” based on simple concepts without any fundamental micro and macro background could be not expected. This is the reason why Security Tokens do not represent a new or disruptive alternative to stocks of regulated listed companies.

Lastly, the current Proof-of-Work (PoW) algorithms used to create Tokens on Ethereum will likely be substituted by PoS algorithms, which are capable of solving high capacity tasks at zero cost. As a result POS increases the use of reliable, fungible, tradeable Utility Tokens, enabling the acceleration of secure transactions without intermediary at lower fees.

FIAT? Do people mean legal tender or the car?

Have you ever understood the impelling reason why crypto-communities have started to call regular and governed sovereign currencies «Fiat» instead of the name legal tender which is commonly used in the real economy since centuries?

“Cryptocurrencies” are simply digital units of measurements encrypted with a high grade cryptography for security and privacy, used as rewards for some solved programming and working-process of computer-algorithms. They are not issued, nor governed by any central authority (as legal tenders are), but created and managed by online-communities with highly sophisticated decentralized technologies.

On a side note, the term “cryptocurrency” for Bitcoin & Co. is misleading. A currency is a centralized regulated unit, accounting a store of sovereign value issued by central banks in terms of coins and banknotes, whereas crypto-units like Bitcoin & Co. represent private unregulated digitally encrypted rewards, powered by a decentralized network of people solving algorithms.

The historical data of “cryptocurrencies” is recorded on public ledgers, which include all executed and validated transactions within the payment networks. However, no user data is visible except encrypted wallet IDs. A wallet is a virtual account with the same functionality of a physical wallet with cash. Safety is a clear advantage as a result of high-level encryption and appropriate backup processes in place. In the event of IT issues, technical failure or human error, the recovery of the wallet is possible with a unique phase consisting of a set number of words (wallet dependent).

Valid crypto-units can be freely used after installing a “wallet” on a personal desktop or smartphone. A virtual wallet will generate a personal, anonymous “token-ID-address” (same logic as of email address), which works like a bank account, allowing money storing and booking. Crypto-payments on smartphones do not need PIN or signatures like credit or EC cards but use NFC radio technology and QR codes of the respective wallet apps of their counterparts. The final technological overview does not represent anything unseen or disruptive, no matter the different applications.

For payments, domestic or cross-border transactions, the value given by crypto-payments is the same of the transfer, without limitation of amounts. In fact, fast-payments are the real game-changer in the payments sector which has triggered online retailers to go cashless. Increasing consumer use of alternative digital payment methods along with the diminishing popularity of fee-intensive credit-cards should not come as a surprise in the near future.

In such a dynamic environment the pan-European instant-payment directive Payment Services Directive (PSD2) will regulate payment services and payment service providers in the EU in 2019, enabling merchants to receive cashless payments directly from customers while avoiding substantial fees and fraud-risks linked to the use of credit cards. With PSD2, cashless payments will be faster and consumer protection will be standard without using crypto-units like Bitcoin & Co. (one of the major reason why those «currencies» aim at replacing legal tender actually). Aimed advantages behind such crypto-units will be standardized with regular legal tenders a result, thus PSD2 will limit the reasons why merchants and their customers should prefer Bitcoins & Co. to legal tender.

Utility Tokens are the real disruptive alternative payment unit for merchants and consumers

The PSD2 will increase alternative payment-systems developed on Blockchain, thus Utility Tokens represent a fungible and tradeable unit secured by the highest grade of cryptography and will work to measure goods and/or services, further improving security and significantly lowering fraud risks by replacing credit-cards.

Blockchain is like a newborn that needs a lot of attention, care-takers and that should be protected against bad people: it always depends on how a technology is used. At PayPlus+ AG we truly believe that blockchain needs righteous nourishment and an empowering environment to flourish; for these reasons, utility tokens will lead the cashless economy and they will be the real disruption in alternative payment methods, reducing frauds and increasing security.

If you wanna learn more about utility tokens, how they will change the future of payments, and what we do at PayPlus+ please, feel free to follow us here or on our Social Channels (Twitter, LinkedIn, Facebook).

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