As countries look to rollout a CBDC for general retail use, there are various issues related to the representation, portability and verifiability of value in connected and disconnected environments that create challenges for many payment use cases.
Humanity has always struggled with the expected value of things relative to each other and how to transmit that value between people, communities, countries and globally. Adding new technology has not always made this easier. Individuals still need the confidence that they can go anywhere and dispense a source of value for a quantity of goods or services that is understood and agreed to by both parties. Technology can be a facilitator and a connector between the two parties, but they still need to agree on the value paid for the value received.
In the effort to make it quick and simple to transit value between parties by tapping a device, all options that will enable a mesh of devices and technologies to facilitate the transaction should be considered. The Internet of Things offers a plethora of devices that could enable that mesh.
Beyond that, the face of payments and money movement changes drastically in a digital currency world.
The Making of a Modern Digital Payment
The first thing to consider is that physical money movement and the need for legacy methods of collecting and forwarding funds no longer applies in the CBDC world. Purchasing an item could trigger a variety of payments to occur to complete the transaction. In today’s payment model, you make a relatively simple point-to-point payment for goods. You go into a merchant, select an item and you make a single payment from your account to the merchant’s account. But not all of that money is for the merchant. The payment you made likely includes taxes that need to be forwarded to one or more government agencies, the cost of the goods you purchased needs to go to the manufacturer/distributor of those goods, etc. A modern payments ecosystem within a CBDC will operate very differently and allow the various sums to be sent directly to all the parties involved. Collect and forward payment models are wasted in a digital context.
Whether you are operating in a single or dispersed blockchain model, any given store of value within a CBDC could have trillions of aliases defined for moving money in and out of that store of value. These aliases can also be created with specific factors such as being used for inbound only or outbound only payments. Aliases can also be generated for one-time usage. With this advancement, account owners have immense flexibility and control over the movement of value in and out of their accounts. Organizations can easily track and control value movement using these aliases by tagging them to specific customers or even specific promotions to a customer. These are all defined using smart contracts tied to the aliases as they are generated.
For a more detailed look at the inner workings of modern payments, let’s break down a more complicated payment for a meal in a restaurant:
Four people go out to share a meal in a restaurant.
At the end of the meal, there is a bill to be paid of $440. Bob agrees to handle the payment to the restaurant for the meal and he will split the cost equally with the participants.
Bob initiates payment of $440 plus an $80 tip and sets a ‘request to pay’ for $130 (i.e., ? of $320) to Bonnie, Ben and Betty to reimburse Bob for their portions of the bill. Upon scanning the QRcode to initiate the restaurant payment, a cascade of transactions are initiated:
- A request to pay is sent to Bonnie for $130
- A request to pay is sent to Betty for $130
- A request to pay is sent to Ben for $130
- $320 is paid to the restaurant’s account for the food and drink consumed.
- $50 is paid to the alcohol control board for the tax on wine and spirits consumed
- $30 is paid to the state/provincial sales tax agency
- $40 is paid to the federal sales tax agency
- $80 tip is paid directly to the server’s account or possibly to a smart contract that splits the tip across several staff at the restaurant in real-time.
In this way, a variety of transactions are covered and money is moved to their respective destinations in real-time without the need for a collection and forwarding effort by the restaurant operator.
Digital currency and smart contracts make this all feasible and efficient and drive the movement of money between parties in real-time. This could drive a sea change in the retail sector to operate in more consignment driven models. Products are added to inventory with a smart contract and the manufacturer/distributor is paid for those items in real-time as they are sold by the merchant.
