It is amazing how people believe so much nonsense, especially when it appears on Twitter (or X).
In addition to claims that FedNow was going to be a central bank digital currency (CBDC), there are some asserting this is going to kill cryptocurrency.
To start, obviously there was no CBDC tied to FedNow as some professed. Of course, the narrative is now switching to it being grounds for future roll out since the system is live without a token.
Now we are seeing some noise that FedNow is going to destroy cryptocurrency.
Payments Only
FedNow is an instant payment system.
This is the first point that we have to drive him. It is rather limited in what it can do.
We have a system that is a service offered to domestic banks within the United States. That is who the customers are. Unlike cryptocurrency, this is not available to the general public. They can only access it through an account with a commercial bank.
To utilize anything the Fed implements requires a master account. In fact, cryptocurrency banks are complaining they are being unfairly excluded.
The global payment business is enormous. This is something that is evident to anyone who took a look. However, it is just the tip of the financial iceberg.
That said, the Federal Reserve has basically upgraded the FedWire system. It is a network upgrade that makes the infrastructure more powerful. We now have a more useful feature that is built on top, that banks can offer their customers.
FedNow is centrally controlled. It is also rather isolated. There is no interoperability with other systems around the world. In fact, it does not address the horrific problems with cross border payments or settlements. Plus, there is a $500K limit on any transactions.
Cryptocurrency More Than Payments
For years, people were asking "what can you use it for" when it comes to cryptocurrency. This is code for "what can I buy?".
This is where people miss the boat. Cryptocurrency is a lot bigger than payments. Certainly, that is a facet that it can address, especially with stablecoins. However, to believe that payments is all there is to cryptocurrency is vastly underestimating the technology.
When we delve into the different areas of what this does, we see why FedNow is no threat whatsoever.
For example, we often discuss the merging of social media and finance. This is something Elon Musk made clear in recent days is his intention. FinTech is going to, once again, asset itself.
Can FedNow be incorporated into social media applications?
What about gaming? Many are aware of the potential that exists there. Both fungible and non-fungible tokens (NFTs) can be utilized to enhance the gaming experience.
Is this something that FedNow is going to do?
Decentralized finance (DeFi) is already offering collateralization and lending platforms. This can be done utilizing digital assets, mostly BTC or ETH, for loans.
Over time, we can expect this to grow as more applications of this nature are created. This means that people will be using all kinds of assets as collateral.
Again, do we see FedNow in this area?
These are a few of the basics pertaining to cryptocurrency. This has not gotten into any of the advanced ideas such as synthetic assets.
The Tokenization of Everything
Another topic often discussed is the tokenization of everything. Naturally, this is a broad heading that encompasses a lot.
Many gravitate to the concept of tokenizing real world assets. This is legitimate and an enormous market. Just taking a portion of real estate would mean tens of trillions in token value.
One of the areas that is not often discussed by the mainstream is the tokenization of people's activity. Here is where we encounter something completely different. Web 3.0 makes the social layer an asset. For the first time, markets can quantify it.
We are moving beyond stock and bonds being the two investment options tied to a company. With tokenization, the social layer can also be financially addressed.
Community is a term tossed around. This also can be tokenized, bring monetary value to hobbies or topics of interest. Whatever people gather around, an economy can form.
FedNow is doing nothing in this area.
The Problem FedNow Does Not Solve
There is a major issues with FedNow.
While it is a system that much improves the way the banking system can move money around, it does not do anything to get people money.
Much of the world suffers from a lack of resources. The discussion often moves to the unbanked. The challenge with this is many of those people have nothing to bank.
Cryptocurrency has a solution with Web 3.0. Here is where blockchains, and associated layer 2, have the ability to distribute coins and tokens to people. This provides the unique advantage.
There is no need for instant settlement if one doesn't have money in the account.
Therefore, in closing, do not believe that cryptocurrency is threatened by FedNow. This is more nonsense spread around social media.
FedNow is not a crypto killer simply because cryptocurrency is much bigger than payments.
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