Paper to protocol: money in a tokenised world
Spotlight on some of the digital currencies that are taking centre stage in a world of blockchains, computer code, and evolving regulatory landscapes and use cases.
Cryptocurrencies like Ethereum and Bitcoin
Cryptocurrencies, led by Bitcoin and Ethereum, are reshaping the global financial landscape. Bitcoin, launched by the mysterious Satoshi Nakamoto, operates on a decentralised network of over 10,000 computers using the Proof of Work protocol. This consensus mechanism requires Bitcoin miners to solve complex “mathematical puzzles” automatically generated by Bitcoin protocol to validate transactions, ensuring the security and immutability of the Bitcoin blockchain. Bitcoin’s primary use is as a digital asset and store of value, akin to “digital gold”.
Ethereum, the second-largest cryptocurrency, goes beyond payments by supporting smart contracts and decentralised applications (DApps). A smart contract is a self-executing computer programme stored on a blockchain that automatically enforces agreement between parties without requiring intermediaries (like lawyers or property agents).
Its public blockchain transitioned to a more energy-efficient Proof of Stake (PoS) protocol in 2022. PoS is a way for blockchains to verify transactions by validators. Networks chose validators randomly, who have staked (locked-up) their Ethereum (ETH) as collateral. Ethereum protocol shift from Proof of Work (PoW) to Proof of Stake (PoS) has reduced the energy consumption. This shift replaces the resource intensive process of miners solving complex puzzles with a more efficient system where validators authenticate transactions through a network defined consensus mechanism.
Ethereum also introduced the concept of “gas fees” to manage transaction costs based on computational complexity.
Cryptocurrencies offer immense opportunities but come with risks. Volatility, security and regulatory uncertainty are key considerations. Despite challenges, cryptocurrencies offer numerous business cases with a potential to transform industries. Just to mention a few examples, in finance, they could enable faster and cheaper cross-border transactions, also mitigating counterparty risk through smart contracts. In healthcare, the technology enables secure sharing of patient records across healthcare networks and streamlining insurance claims processing.
Stablecoins
Stablecoins, first introduced with BitUSD in 2014, are a unique class of cryptocurrencies designed to maintain a stable value by pegging to an asset like fiat currency, commodities or other cryptocurrencies. There are four main types: fiat-backed, commodity-backed, crypto-collateralised, and algorithmic. Popular examples include Tether (USDT), pegged by the US dollar; and Pax Gold, tied to gold.
Unlike volatile cryptocurrencies such as Bitcoin, Stablecoins combine the transparency and efficiency of blockchain with price stability, making them suitable for everyday transactions, savings and remittance.
However, their growing adoption has attracted regulatory attention. The European Union (EU) introduced the Markets in Crypto-Assets Regulation (MiCAR) to establish a unified framework for crypto-assets.
Meanwhile, the US proposed multiple Stablecoin bills in February 2025, under the newly appointed Trump regime, focusing on transparency, fully backed reserves and anti-money laundering compliance. The STABLE Act of 2025 (Stablecoin Transparency and Accountability for a Better Ledger Economy Act) was introduced on February 6, 2025. The GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act was introduced on February 4, 2025.
While regulatory frameworks for Stablecoins are still developing, they offer practical use cases such as cross-border transactions, cost-effective remittances and yield-generating savings options.
CBDC
Currency has evolved through barter, metallic coins, paper money and now digital currency. Central Bank Digital Currency (CBDC) represents a new phase, issued directly by a central bank, making it distinct from current digital wallets or accounts that are claimed on commercial banks.
CBDCs are direct liabilities of central banks and aim to reduce cash handling costs, promote financial inclusion (as no bank account is needed) and address risks associated with private cryptocurrencies. The advent of CBDCs is a direct response to the rapid rise of private cryptocurrencies like Bitcoin and Stablecoins, which have disrupted traditional financial systems by offering decentralised, borderless and programmable alternatives. CBDCs achieve programmability through smart contracts. A few programmable CBDC uses cases are automatic transfers, interest rate adjustments for executing monetary policies and targeted subsidies.
The European Central Bank (ECB) has been researching a digital euro since 2021, with findings expected by 2025. Globally, 134 countries, representing 98 percent of GDP, are exploring CBDCs. Thirteen are in pilot stages, and three (Bahamas, Jamaica, Nigeria) have launched fully. By minimising the need for intermediaries, lowering settlement costs, enhancing transaction security, and financial accessibility in remote areas, CBDCs are poised to redefine global financial systems.
Smart contracts
Smart contracts were first envisioned in 1997 by cryptographer Nick Szabo. Unlike traditional contracts, these agreements are written as computer code and automatically executed by computers without relying on intermediaries. However, at the time, the technology to fully realise Szabo’s vision did not exist. Smart contracts gained attention in 2013, when Vitalik Buterin introduced the Ethereum white paper, outlining how smart contracts could run on a blockchain — a decentralised network of computers.
Smart contracts are also proposed to transform Central Bank Digital Currencies (CBDCs). By embedding logic into digital currencies, smart contracts can automatically trigger actions based on predefined conditions. For instance, they could streamline tax collection, prevent illegal transactions, or enforce monetary policies. Governments could even customise currency usage, such as limiting where funds can be spent or adjusting interest rates dynamically.
With their ability to reduce human error, enhance transparency and automate processes, smart contracts represent a paradigm shift in how agreements are created and executed in our increasingly digital world.
Blockchain transforming the payment landscape
Despite challenges such as scalability, energy inefficiency, regulatory uncertainties and interoperability with existing systems, blockchain has the potential to disrupt and redefine the payment industry once these hurdles are addressed.
Blockchain's transparency and immutability streamline compliance with anti-money laundering (AML) and Know Your Customer (KYC) regulations, easing the regulatory burden for cross-border payments. By eliminating intermediaries, it significantly reduces transaction costs – a critical improvement over the high fees associated with traditional correspondent banking systems. Additionally, blockchain enables faster cross-border transactions, processing payments in real time without cut-off times.
Decentralised Finance (DeFi) platforms leverage blockchain's capabilities to offer financial services such as lending, borrowing and trading without the need for traditional intermediaries. This decentralised approach enhances efficiency, improves security and ensures greater transparency. The use of smart contracts further automates processes, reducing errors and delays.
Blockchain also expands financial inclusion through initiatives like Central Bank Digital Currencies (CBDCs). These digital currencies leverage blockchain to provide unbanked and underbanked populations access to financial services, bridging gaps in the traditional financial system.
By addressing its current limitations, blockchain can unlock unparalleled opportunities for innovation in payments, offering a faster, more secure and inclusive financial future.
This page was published in April 2025.
Abhishek Vyas
… believes payments are the unsung heroes of modern life. When he is not daydreaming about frictionless transactions, he uses storytelling to break down the tokenised economy so others don’t have to Google every term!
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