The European Central Bank has fired up cryptocurrencies Bitcoin, Ethereum, and Ripple in a bid to make it easier for the bank to conduct monetary transactions. The move shows that the central bank is slowly but surely distancing its self from reliance on fiat currencies such as the euro.
The ECB is not just any central bank. It’s one of only two major central banks in the world that actually calls itself a “central bank” rather than calling itself “national banking authority”. Despite being among the oldest still around, it’s still relatively young; most nations don’t have their own independent currency until they become independent.
Officially, it’s the central bank of the Eurosystem (European System of Central Banks), which is composed of all the eurozone’s central banks. Its main mission is to maintain price stability within the eurozone. Since 2013, its president has been Mario Draghi, who succeeded Jean-Claude Trichet, who in turn succeeded Wim Duisenberg.
The currency that the ECB will use for its program is Ripple’s XRP token.
Ripple is a blockchain-based payment system that was built on distributed ledger technology and aims to allow secure, transparent and instant transactions with any currency in any location around the world.
The system allows for the instant transfer of any asset, whether it’s a currency like the US dollar or a commodity such as gold. The platform allows users to make payments on demand without having to pre-fund an account.
According to Draghi, the introduction of cryptocurrencies by central banks could be an important tool in addressing some of the problems that are being experienced between different payment systems. The ECB is trying to address payments imbalances within member states and with other countries around the world.
How will the ECB use digital currencies?
The central bank will conduct market operations through the new system in order to “ensure that cash in the eurozone is provided in a more efficient, secure, and cost-effective way.” It’s also intended to increase competition within the payments industry by introducing new players and increasing competition. The bank has said it hopes that this change could also lead to small improvements for users of traditional currencies, such as the euro.
What are the benefits of using cryptocurrencies? Through cryptocurrencies such as XRP, it’s possible to settle transactions almost instantly instead of waiting several days for a payment to be processed. This can be particularly useful when making international payments, where funds may otherwise be tied up for several days.
What about Ripple?
Ripple is a payment network for banks and financial institutions that wants to allow them to make cross-border payments more easily. It’s also a system of digital token that allows users to make transactions across the network. “Ripple connects banks, payment providers, digital asset exchanges and corporates via RippleNet to provide one frictionless experience to send money globally,” the website says.
In February 2018, the ECB received a mandate from the European Parliament and the EU Council of Ministers to conduct a comprehensive analysis of blockchain technology and its use in the banking industry.
What about Ethereum?
Ethereum is a public blockchain platform that allows developers to create decentralized applications. It also supports next-generation contracts known as “smart contracts”. Smart contracts are in a broad sense programs written in code instead of English or any other natural language. They can be used to enable the exchange of money, content, property and many other things.
What is Distributed Ledger Technology?
A distributed ledger is a database that runs on multiple devices simultaneously. This differs from centralized ledgers which are run by one organization or distributed ledgers which are run by multiple organizations. With distributed ledgers, anyone with access rights can view the data within the ledger at any time and verify it as accurate.
