The mass consumer adoption of blockchain is likely to be driven by the use of central bank digital currencies (CBDCs) and tokenised assets in gaming and payments on social media, a new report by Citi Global Perspectives and Solutions has said.
Up to $5 trillion could move to newer digital money formats such as CBDCs and stablecoins by 2030, of which roughly half could be linked to distributed ledger technology or blockchain, according to the report.
“We are approaching an inflection point, where the promised potential of blockchain will be realised and be measured in billions of users and trillions of dollars in value,” Kathleen Boyle, managing editor of Citi GPS, said.
“Successful adoption will be when blockchain has a billion-plus users who do not even realise they are using the technology. Blockchain user numbers will be boosted by daily activity — spanning money, games, social and more.”
CBDCs are the digital form of a country’s money issued by its central bank.
Blockchain is an expanding digital chain of transactions linked with each other using cryptography — a mechanism for secure communications — that creates an open ledger to record transactions in a fast and efficient manner. This database technology is behind cryptocurrencies such as Bitcoin and can work as a real-time archive for recording the history of financial transactions.
The UAE unveiled the Emirates Blockchain Strategy 2021 in 2018. It aimed to switch almost 50 per cent of government transactions on to blockchain in three years.
By adopting blockchain, the UAE is expected to save 77 million work hours annually, Dh11 billion ($2.99 billion) in transaction costs and regular document processing, and 398 million printed documents a year, according to the government.
Last November, Abu Dhabi launched the Middle East, Africa and Asia Crypto and Blockchain Association, which is backed by Abu Dhabi Global Market, the emirate's financial centre, to hasten the development of blockchain and cryptocurrencies in the region.
It aims to bring industry players together to discuss strategies and address the biggest challenges facing the industry, while also integrating digital assets into key economic sectors.
Last week, the UAE Central Bank also said it had started implementing its digital currency strategy, Digital Dirham, as it prepares the country’s infrastructure for the future of finance.
It signed an agreement with Abu Dhabi’s G42 Cloud and digital finance services provider R3 to be the infrastructure and technology providers, respectively, for the implementation of its CBDC, the regulator said.
In recent months, several central banks have announced plans to introduce CBDCs by the end of this decade, giving almost 2 billion people the opportunity to experiment with digital currency, according to the Citi report.
“Get ready for CBDC versions of the euro, British pound and Indian rupee, in addition to the Chinese renminbi, which has already been trialled for a couple of years,” the study said.
“Together, these four jurisdictions constitute more than 50 per cent of the global population and 35 per cent of global bank deposits. Hence, we think CBDCs could have at least 2 billion users and $5 trillion-plus in circulation.”
Art and collectibles are also moving on to the blockchain because these industries resonate with one of blockchain’s key features — trust and provenance — as well as the ability for a broader range of owners to invest through fractionalisation, the research said.
Similar to the arts, entertainment industries such as music, will also use blockchain technology in the form of non-fungible tokens (NFTs).
“Tokenisation of financial and real-world assets could be the killer use case driving blockchain breakthrough, especially for private market assets,” the study said.
Tokenisation refers to the creation of tokens, which are pieces of code on a blockchain, to record information about underlying assets and liabilities including their attributes or characteristics, status, transaction history and ownership.
Real-world assets represent highly illiquid, bespoke assets such as real estate, art and collectibles, agriculture, climate assets, and intangible assets like carbon credits and intellectual property, according to the report.
The Citi GPS report projects tokenisation to grow by a factor of more than 80 times in private markets and reach about $4 trillion in value by 2030.
“Beyond private market tokenisation, we expect $1 trillion of the repo, securities financing and collateral market could be tokenised by 2030,” the report said.
“We forecast $4 trillion to $5 trillion of tokenised digital securities and $1 trillion of DLT-based trade finance volumes by 2030.”
Regulatory considerations are necessary to allow blockchain adoption and scalability without hindering innovation, Citi said.
Although mass adoption of blockchain could still be six to eight years away — due to the need for collaboration among participants, standardisation of platforms, interoperability and compatibility with existing systems and software — the momentum has positively shifted as governments, large institutions and corporations move from investigating the benefits of tokenisation to trials and proofs of concept, it added.
