Central Bank Digital Currencies and Games to Drive Mass Blockchain Adoption
Mass consumer adoption of blockchain is likely to be driven by the use of central bank digital currencies (CBDCs) and tokenized assets in games and social media payments, a new report from Citi Global Perspectives and Solutions has said.
Up to $5 trillion could be moved to newer digital money formats like CBDCs and stablecoins by 2030, about half of which could be linked to distributed ledger technology or blockchain, according to the report.
“We are approaching an inflection point, where the promised potential of blockchain will be realized and measured in billions of users and trillions of dollars in value,” said Kathleen Boyle, managing editor of Citi GPS.
“Successful adoption will be when blockchain has billions of users who don’t even realize they’re using the technology. Blockchain user numbers will be amplified by daily activity – encompassing money, gaming, social and more.”
CBDCs are the digital form of a country’s money issued by its central bank.
Blockchain is an expanding digital chain of transactions linked together using cryptography – a mechanism for secure communication – which creates an open ledger to record transactions in a fast and efficient way. This database technology is behind cryptocurrencies such as Bitcoin and can act as a real-time archive to record the history of financial transactions.
The United Arab Emirates unveiled the Emirates Blockchain Strategy 2021 in 2018. It aimed to switch nearly 50 percent of public transactions to blockchain within three years.
By adopting blockchain, the UAE is expected to save 77 million man-hours annually, Dh11 billion ($2.99 billion) in transaction costs and routine document processing, and 398 million printed documents a year, according to the government.
Last November, Abu Dhabi launched the Middle East, Africa and Asia Crypto and Blockchain Association, which is supported by Abu Dhabi Global Market, the emirate’s financial hub, to accelerate the development of blockchain and cryptocurrencies in the region.
The aim is to bring industry players together to discuss strategies and address the biggest challenges facing the industry, while integrating digital assets into key economic sectors.
Last week, the UAE’s central bank also said it had begun implementing its digital currency strategy, the Digital Dirham, as it prepares the country’s infrastructure for the future of finance.
It signed an agreement with Abu Dhabi’s G42 Cloud and digital financial services provider R3 to be the infrastructure and technology providers respectively for the implementation of the CBDC, the regulator said.
In recent months, several central banks have announced plans to introduce CBDCs by the end of this decade, giving nearly 2 billion people the opportunity to experiment with digital currency, according to the Citi report.
“Get ready for CBDC versions of the euro, British pound and Indian rupee, in addition to the Chinese renminbi, which has already been tested for a couple of years,” the study said.
“Together, these four jurisdictions account for more than 50 percent of the world’s population and 35 percent of global bank deposits. Therefore, we believe that CBDCs could have at least 2 billion users and more than $5 trillion in circulation.”
Art and collectibles are also making the transition to blockchain because these industries resonate with one of blockchain’s key features — trust and provenance — as well as the ability for a wider range of owners to invest through fractionalization, the research said.
Like art, entertainment industries such as music will also use blockchain technology in the form of non-fungible tokens (NFT).
“Tokenization of financial and real-world assets could be the killer driving the blockchain breakthrough, especially for private market assets,” the study said.
Tokenization refers to the creation of tokens, which are pieces of code on a blockchain, to record information about underlying assets and liabilities, including their attributes or properties, status, transaction history, and ownership.
Real-world assets represent highly illiquid, bespoke assets such as real estate, art and collectibles, agriculture, climate assets and intangibles such as carbon credits and intellectual property, according to the report.
The Citi GPS report estimates that tokenization will grow by a factor of more than 80 times in private markets and reach around $4 trillion in value by 2030.
“Beyond tokenization of the private market, we expect $1 trillion of repo, securities financing and collateral could be tokenized by 2030,” the report said.
“We estimate $4 trillion to $5 trillion of tokenized digital securities and $1 trillion of DLT-based trade finance volumes by 2030.”
Regulatory considerations are necessary to allow blockchain adoption and scalability without impeding innovation, Citi said.
Although mass adoption of blockchain may still be six to eight years away—due to the need for collaboration among participants, standardization of platforms, interoperability, and compatibility with existing systems and software—momentum has shifted positively as governments, large institutions, and corporations move from is investigating the benefits of tokenization for trials and proofs of concept, it added.
Updated: 31 March 2023 at 03.00
