The future of payment systems

Ted Capwell

In connection with the continuous development and improvements occurring in the field of processing innovations in the sphere of special encryption tools, a completely new format of financial electronic means has appeared — the so-called “crypto-currencies”. Their attractiveness lies in the fact that financial transactions by legal entities can be carried out privately, without the involvement of any intermediaries.

The emergence of numerous virtual communities is very common in the network at present, new forms of payment appear with truly cosmic speed.

The emission of virtual “coins” is based on an asymmetric type of encryption, while the cryptographic ways of protecting it are on enough high level. The crypto currency is produced by the so-called “mining”, which is possible if there is a server or a super-powerful computer that “solves” complex mathematical programs in an automatic mode.
Crypto currency can be compared in some way with gold, as their production is also quite laborious, and the number of units of certain crypto currency is always strictly limited.

The future of payment systems

Neither the management center nor the regulator has this currency at all, so it is almost impossible to ensure the complete reliability and stable position of this payment facility.

It is worth paying attention to the fact that, despite the fact that the crypto currency can at first glance resemble the classic “financial pyramid”, it is in fact not it. After all, in the “… pyramids” the first participants are enriched by attracting new investors, and here the rate of “cryptomonet” is regulated as a result of free exchange trades. Of course, the trailblazers of this system have a somewhat greater benefit, but over time, the “extraction” of this payment system is considerably more complicated. Because of this, most often in the process of developing a specific system, the following participants can only purchase these funds for so-called “fiat” money.

Fiat money (Fiat – indication) — legal money, the establishment of the nominal value of which is guaranteed by public authorities. These funds do not have an independent cost, or it is not commensurate with the nominal value assigned to them.
Crypto-currency is a very real instrument of a financial nature, demand and supply regulate its rate (growth or decline), from contributions and the number of investors this rate does not depend in any way.
However, a fraudulent scheme of substitution may be present here, when a really nonexistent source of funding is officially announced. After all, the mechanism of attracting “customers” to the specified system is based more on a trusting attitude than on a practical understanding of the algorithm of the system.

In the opinion of the FATF, the crypto currency is a “measure” of value, suitable for conducting trade in digital form and functioning as a method of exchange or settlement, however, not having in any single jurisdiction the status of a legal means of payment.
Probably the fact that the Crypto-currencies are not directly related to the currencies of the currencies, however, they can be changed to fiat funds and back (euro, dollars and rubles). Virtual exchanges contribute to such an exchange without the slightest problem.
Fiat money under the laws of the state are accepted for payment, that is, redemption, issue and circulation of them occurs in accordance with the principles of national laws of state regulators.

Non-financial money — private financial means of payment systems.
That is, their circulation, issue and redemption are made according to their rules. Control structures and regulators in different states work with a sufficiently wide range of possibilities for such structures. Often, non-fiat money is tied to the rates of world currencies, but state structures are in no way able to ensure the reliability of these units of value.
It is important to realize that crypto-currencies according to the Russian jurisdiction can not even be fully attributed to electronic money. According to the Federal Law of June 27, 2011 № 161 (last change – December 29, 2014) “About the nat. payment system “those” funds that are provided by one person … to another person … “can be considered” electronic money “, while it is necessary to account for information on the amount of these funds, bypassing the opening of a bank account …, etc.
Individual issuers of crypto currency create only the payment infrastructures themselves with a view to their subsequent development and placement of decentralized funds. After the well-known Bitcoin, new ones started to appear gradually – Worldcoin, Litecoin, Peercoin, Gridcoin, Namecoin and others. It’s hard to believe, but now there are more than 700 types of widely known such “currencies”.

In fact, even before the introduction of digital technologies, “competitive” currencies existed periodically in the “real” financial field. An example is the Louis Pound in the UK, the Shaimuratiki in the Bashkir settlement of Shaimurat, etc. They can have a positive effect, but only if they comply with legislation and promote innovations in the financial world.

That is, the crypto currency can also be considered a local means of payment in the IT environment. But without centralized supervision and regulation, they pose a serious threat to the world financial system.
For example, in the United States and in Germany Bitcoin is a legally regulated currency, and in some countries its use is limited or completely banned.
According to the results of analysts on crypto-currencies, they have a number of main features that distinguish them from other electronic means of payment:

anonymity of transactions lack of regulatory authority;
• Practical lack of control in international transfers;
• Decentralization of emission processes;
• Lack of security;
• private and limited in volume emissions;
• only partial recognition;
• independence from inflationary processes;
• Insecurity;
• Unregulated course;
• public global registry (collective);
• no commission is required for international transfers;
• The system is capable of creating new payment instruments.

On the one hand, anonymity of payments is attractive for network users and avoids taxation. On the other hand, in case of bankruptcy of such an exchange or attack of hackers – the risk of losing capital becomes extremely high. In addition, of course, anonymity is not welcomed by the authorities, since it is a direct obstacle to the regulation of the economic processes of countries and allows to hide a huge amount of information about the processes taking place in the financial markets.
The absence of a single central regulator, issuer, registration norms, etc., does not contribute to the formation of confidence in this system either. – that is all that corresponds to the state standards.

And, despite the fact that, in fact, the popularity of crypto currency is indisputable, we know that:

• We can not conduct them directly through the accounts department as a payment currency;
• We can not pay taxes through transactions with them;
• We can not also officially register the transactions that have been made by paying them.

Nevertheless, crypto-currencies can be considered a protective mechanism for inflation and an instrument for obtaining a considerable exchange speculative profit.

Another positive thing is that in crypto systems their ability to speed up calculations made on international transactions. The list of transactions made by crypto currency is still in the public collective register, which includes the chains of blocks protected by ciphers. They will not require the participation of banks and other intermediary financial agents.

Separately, I would like to note the fact that at the moment there is an active formation of alternative networks of crypto-currencies that use cryptographic protocols in a fairly wide range of operations. They make it possible to conclude financial contracts (for example, “for the difference in prices”), work as savings accounts, make decentralized information exchange about transactions, form new currency forms on the basis of circulation, crypto currency.
Those who believe that the future of the crypto-currencies are absolutely sure that they will become a complete alternative to the so-called fiat money.

So, what other positive aspects in this area we can note:

• Both the participants of the system and the operations they conduct – remain anonymous, it is impossible to obtain information about the end user of banks and other state structures;
• there is no common processing center, that is, at the moment of switching off a certain fraction of the capacity – nothing critical should happen, because each of the computers will store information about each transaction and the amount of crypto currency in each of the personal accounts;
• neither taxes, nor sanctions, nor other external circumstances will affect the crypto-currency market;

However, the RF Prosecutor General’s Office and the Central Bank of Russia are afraid that crypto money can be used for money laundering, financing of terrorist acts and other unlawful acts. Therefore, they are often regarded as rather questionable operations.
At the same time in the Russian Federation at the moment the conditions for the formation and development of crypto-currency payment schemes are very suitable:

• there are corresponding developments of Russian specialists in cryptography;
• The IT sphere is well developed, there are talented programmers;
• The moderate climate also does not interfere with the deployment of significant computing power;
• The difficult situation in the economy dictates the rules, according to which the issue of cost reduction should be solved;
• relations with the regulators of global financial flows are tense.

The United Kingdom and the United States are encouraging the allocation of grants for the study of the crypto-currency market, however, the authorities of the Russian Federation again and again declare the possibility of closing developments in this area. It is difficult to argue that the use of the Internet network as an environment for conducting payments allows, under equal conditions, to conduct operations both within the same country and carry out international operations, which can not be fully regulated.

Since virtual currency systems can provide other financial transactions (loans, insurance), their activation significantly increases the risks related to the stability of the currently functioning financial systems. Crypto-money, circulating without intermediaries on the stock exchange and not controlled by regulators, is a real challenge to the existing financial system.
Of course, that the only “right” opinion can not exist here, but in practice we observe the increasing positions of the Crypto-currency and their gradual entry into the everyday life of the Web users.

There are a variety of innovations in the block-system, allowing you to solve economic problems of a very different nature.
It is very likely that full automation, direct operations and accessibility are still waiting for the financial market, and the crypto currency is just the beginning of big changes.

Indeed, the decline in the role of central banks in the processes of monetary operations will almost destroy the increased prices for money transfers, save users from taxes that were introduced by the intermediary systems – PayPal, MasterCard, Visa and others, and eliminate the need for notarial costly documentation support. It turns out that even the very system of concluding contracts of law can change radically.

For example, systems such as Ethereum (see the site or Stellar (see already form the so-called “smart transactions”, transferring them as simply as sending emails. And the safety in their case is highest, and the operational costs are zero. It is difficult to argue that, as the crypto-currency market is consolidated, most of the economic sectors — financial institutions, banks, and legislation — will undergo tremendous changes.


“General Risk Warning: Binary options and cryptocurrency trading carry a high level of risk and can result in the loss of all your funds.”