New research!

Central Bank Digital Currencies (CBDC) are digital money issued, and backed, by a central bank. Consumer trust can encourage or discourage the adoption of this currency, which is also a payment system and a technology. CBDCs are an important part of the new Fintech solutions disrupting finance, but also more generally society. This research attempts to understand consumer trust in CBDCs so that the development and adoption stages are more effective, and satisfying, for all the stakeholders. This research verified the importance of trust in CBDC adoption, and developed a model of how trust in a CBDC is built (Zarifis & Cheng 2023).

Figure 1. Model of how trust in a Central Bank Digital Currencies (CBDC) is built in six ways

There are six ways to build trust in CBDCs. These are: (1) Trust in government and central bank issuing the CBDC, (2) expressed guarantees for the user, (3) the positive reputation of existing CBDCs active elsewhere, (4) the automation and reduced human involvement achieved by a CBDC technology, (5) the trust building functionality of a CBDC wallet app, and (6) privacy features of the CBDC wallet app and back-end processes such as anonymity. The first three trust building methods relate to trust in the institutions involved, while the final three relate to trust in the technology used. Trust in the technology is like the walls of a new building and institutional trust is like the buttresses that support it.

This research has practical implications for the various stakeholders involved in implementing and operating a CBDC but also the stakeholders in the ecosystem using CBDCs. The stakeholders involved in delivering and operating CBDCs such as governments, central banks, regulators, retail banks and technology providers can apply the six trust building approaches so that the consumer trusts a CBDC and adopts it.

Dr Alex Zarifis

Reference

Zarifis A. & Cheng X. (2023) ‘The six ways to build trust and reduce privacy concern in a Central Bank Digital Currency (CBDC)’. In Zarifis A., Ktoridou D., Efthymiou L. & Cheng X. (ed.) Business digital transformation: Selected cases from industry leaders, London: Palgrave Macmillan, pp.115-138. https://doi.org/10.1007/978-3-031-33665-2_6

Dr Alex Zarifis

This report offers a balanced analysis of the opportunities, and challenges, caused by the many moving parts of the cryptoasset ecosystem in Latin America and the Caribbean. I am happy to have contributed to this as one of the co-authors. I found it particularly interesting how some countries want to lead in the adoption of cryptoassets while others want to be more cautious. The countries that lead believe in their ability to regulate cryptoassets and manage any risks that emerge. They want to have first mover advantage. Other countries do not believe being an early, enthusiastic, adopter is worth the risks, and prefer to wait until the industry and the regulation mature. Both approaches are valid, but in both strategies it is important to follow developments closely. This is where this report can be helpful in gaining insights into this sector’s development, market trends, challenges and opportunities, as well as regulatory and policy issues.

The cryptoasset sector has grown across Latin America and the Caribbean in recent years and this expansion has led to increased employment opportunities. Many cryptoasset firms are now full-service fintech providers. The regulatory views on digital assets have shifted, with around a third of public sector respondents being more positive towards cryptoassets. The private sector participants are also more positive now, and they collaborate more with regulators through innovation hubs and sandboxes. The private sector respondents also see growth opportunities in DeFi services and onboarding corporate clients.

However, there are also challenges to address with the most important one being the lack of regulatory clarity. Public sector respondents believe they need more expertise in cryptoassets.

Reference

Proskalovich R., Jack C., Zarifis A., Serralde D.M., Vershinina P., Naidoo S., Njoki D., Pernice I., Herrera D. & Sarmiento J. (2023) ‘Cryptoasset ecosystem in Latin America and the Caribbean’, University of Cambridge – Cambridge Center for Alternative Finance (CCAF). Available from: https://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/publications/crypotasset-ecosystem-in-latin-america-and-the-caribbean/

Dr Alex Zarifis

My new research developed a model of trust in making payments with the Ethereum (Zarifis, 2023). I published the first peer reviewed research on trust in payments with Bitcoin in 2014 (Zarifis et al. 2014), and I wanted to apply my experience from that to understanding the consumer’s perspective to making Ethereum payments.

Ethereum is being utilised in various ways, including smart contracts and payments. Despite some similarities with Bitcoin, Ethereum is a different technology, with different governance and support.

Ethereum payments require digital wallets and the process is different to paying in traditional fiat currencies like the Euro. When a person wants to take an action without controlling all the parameters, and some risk is unavoidable, trust is necessary.

Figure 1. Model of trust in making Ethereum payments, TRUSTEP

The model demystifies how trust is built in consumer payments with Ethereum. The model starts with the individual’s predisposition and then covers the factors from the specific context of Ethereum payments. From the person’s individual characteristics, their willingness to innovate in finance and technology have a role. There are then five variables from the contexts: Adoption and reputation, stable value and low transaction fees, effective regulation, payment intermediaries and trust in the seller. The personal and contextual factors together influence trust in the Ethereum payment process and making a payment with Ether.

While the model has similarities to previous models of trust, such as the role of each individual’s psychological predisposition and the role of reputation, the role of institutions such as regulators and the importance of trust in the retailer, the distinct characteristics of Ethereum also play a role. In fact, the factors related to the distinct characteristics of Ethereum have the strongest support based on the average of the responses. This research can be added to a growing body of research in trust that illustrates how users’ beliefs in each cryptocurrency need to be explored separately.

Furthermore, the role of the organizations involved in the payment process are shown. While trust in the retailer is usually a factor in retail payments, the regulators and payment intermediaries are not always a significant factor, so it is a useful contribution to show that this is the case here.

That is what I want to share with you here. If you have experiences related to what I am talking about, please let me know, I would love to hear from you.

Reference

Zarifis A. (2023) ‘A Model of Trust in Ethereum Token ‘Ether’ Payments, TRUSTEP’, Businesses, vol.3, no. 4: pp.534-547. Available from (open access): https://doi.org/10.3390/businesses3040033

Zarifis A., Efthymiou L., Cheng X. & Demetriou S. (2014) ‘Consumer trust in digital currency enabled transactions’, Lecture Notes in Business Information Processing-Springer, vol.183, pp.241-254. Available from: http://link.springer.com/chapter/10.1007/978-3-319-11460-6_21#