Image a scenario where you need different messengers to send dissimilar types of messages — for example, WhatsApp for text messages, Viber for audio, Telegram for video, etc. Rather inconvenient, correct? Merely this is exactly what happens in finance: There is no mode to send both digital fiat money and cryptocurrency from a bank account without extra steps. It'due south not affecting the masses just yet, only after the issuing of national digital currencies, or central bank digital currencies, in the next few years over the world, the situation is about to become complicated. We need to start looking for a solution now.

CBDCs require a multi-format framework

The traditional financial system can't brush off new technologies anymore. According to the Cambridge Centre for Alternative Finance, the number of cryptocurrency users has almost tripled from 35 meg people in 2018 to 101 1000000 people in Q3 2020. Another study, conducted by researchers from the United Kingdom'due south Financial Conduct Dominance, revealed a 78% increase since 2019.

Cryptocurrency operations are assisting. In Q4 2020 alone, PayPal increased its number of transactions by 36%, which is worth about $277 billion. The increase began in Q3 2020 when the company introduced crypto transactions. This is one of the all-time quarterly returns in PayPal's history.

Related: Will PayPal's crypto integration bring crypto to the masses? Experts respond

Nonetheless, central banking company digital currencies are going to become a role of our daily lives in three to 5 years. And we need completely new infrastructure for its mainstream adoption. China was the showtime to actively promote its digital yuan project — referred to every bit the Digital Currency Electronic Payment, or DCEP. Prc is fully focused on the infrastructure because several local banks have already developed or are developing their own e-wallets — the main tool for working with DCEP.

Related: China turns upwards pace on CBDC release, tests infrastructure prior to adoption

And so far, the Chinese digital yuan is the but example of digital money issued by primal banks that is actually working. Notably, more sixty central banks around the earth are exploring this opportunity. DCEP is built on centralized blockchain technology fully managed by the Primal Bank of Cathay. This technology makes it possible to gain full control over all financial transactions, ensures social spending targeting, increases tax collection, and prevents financial crimes.

In turn, international payments system Visa recently introduced a protocol for offline transactions with central banking company digital currencies. To pay or have payments offline simply requires downloading a mobile awarding. In this case, CBDCs essentially supplant greenbacks, leading to an increase in the number of transactions controlled past the issuer, bank or financial intermediary.

The monetary multi-format framework is near to become a requirement for financial instruments. Banks will have to brand sure that fiat, CBDC and crypto transactions can be made in one place: in a banking application. But at that place is a catch: The new formats take nothing in common with their predecessors. Moreover, governments view the launch of CBDCs as autonomous. In other words, information technology doesn't follow a unified standard with neighboring countries.

What stands in the way of combining "old" and "new" coin?

Cryptocurrencies and CBDCs are relatively new. And then, there is a lot of uncertainty effectually these fiscal instruments. That being said, fiat and digital money share common functions, and the method and quality of their implementation affect how the multi-format financial solution is going to be created.

Building a multi-format financial solution requires a unified approach to compliance. If each service conducts Anti-Money Laundering checks for CBDC and cryptocurrency transactions following its own policy, the banking concern on the receiving end will non confirm them.

People who aren't securely involved in crypto might call back digital assets cannot be integrated into traditional business processes. But this is untrue. Our feel shows that it is necessary to develop a unified arroyo to compliance — the same for both traditional fiat and crypto. Public vilification of all digital asset owners stands in the way of that.

Moreover, the tools in crypto finance are noticeably more effective in AML than those in the traditional arrangement. For case, Know Your Transaction procedures can show the entire transaction history for a particular cryptocurrency — from the moment the token was created to when it was sent to the user's wallet, including every operation in between.

Versatility is getting harder

The differences between "one-time" and "new" coin shown higher up are just a few examples, but they are significant enough that we can't anticipate the seamless use of dissimilar forms of money. That is why the compatibility betwixt them is especially important for many banks and fintech services.

We are inbound a new era of many financial intermediaries of all shapes and sizes. They will serve their own niche, combining unlike types of electronic money, CBDCs and cryptocurrencies, using a variety of services. For example, Visa cards already back up fiat, crypto, precious metals and Bitcoin (BTC) cashback.

When companies and people tin cull among unlike types of money/currencies/payment systems, only those financial institutions that can piece of work with a wide variety of formats and services simultaneously can exist considered universal banks.

The views, thoughts and opinions expressed hither are the author'south alone and practise not necessarily reverberate or represent the views and opinions of Cointelegraph.

Alex Axelrod is the founder and CEO of Aximetria and Pay Contrary. He is also a serial entrepreneur with over a decade of feel in leading technological roles. He was the managing director of big data at the inquiry and development center of JSFC AFK Systems. Prior to this role, Alex worked for Mobile TeleSystems, the largest telecom provider in Russia, where he headed the antifraud and cybersecurity systems evolution.