This section provides a brief introduction to cryptocurrencies that are more than speculative instruments and are increasingly being used to conduct payments.

These are digital or virtual currencies that are secured by cryptography (secure information and communication techniques), which make it nearly impossible to counterfeit or double-spend. Many are decentralised networks based on blockchain technology (a distributed database shared between computer network nodes) that guarantees the fidelity and security of data records and generates trust without a trusted third-party.

Cryptocurrencies are not issued by any central authority or government.

Whilst most cryptocurrencies are more famous for the speculation of their value they are a payment system, many using a blockchain network, and the number of transactions is increasing.

Payments are made from a ‘cryptocurrency wallet’, that unlike its physical counterpart, doesn’t hold any money, but is generally a mobile phone app that interacts with the cryptocurrency blockchain. However, most users generally do not hold their own coins, but keep them in a digital wallet: even some banks, such as Revolut, offer this service.


These are cryptocurrencies where the price is fixed (also called pegged) to  cryptocurrency, fiat currency (such as US Dollars or Euros) or commodities that are traded on a recognised exchange, such as precious metals. The potential advantages are that they are stabilised by assets outside of the cryptocurrency, and not subject to the same financial risk. Because the cryptocurrency is allegedly backed by an asset, there is a mechanism for redeeming them and they are unlikely to fall below the underlying asset (which may itself be subject to volatility and risk).

Like cryptocurrencies, payments can be made using a stablecoin.

Central Bank Digital Currency

A Central Bank Digital Currency (CBDC) refers to the digital form of a fiat currency (a government-issued currency that is not backed by a physical commodity, such as gold or silver, but by faith in the government that issued it) that is an electronic record or digital token of the country’s official currency.

Central banks provide physical money as banknotes that can be used by individuals, households, and businesses to make payments. They also provide electronic money, but this is only available to banks and financial institutions.

Like other forms of official currency, a CBDC is – or would be – issued and regulated by the country’s monetary authority or central bank. There are only a handful in existence now.

For governments, a CBDC can simplify monetary policy implementation and control, but also promotes financial inclusion by bringing the unbanked into the financial system. A CBDC would be denominated in the country’s official currency, for example, in euros, so €100 of CBDC would always be worth the same as a €100 banknote and would be introduced alongside the existing currency, rather than replacing cash and bank deposits.