The Federal Reserve has announced that it will launch its instant payment service, FedNow, in July. FedNow’s instant payment network will process payments in seconds and support transactions between consumers, consumers and sellers, sellers and sellers, and between banks, operating 24/7.
While the exact number of companies that will use the service is unclear, FedNow will be accessible through the Federal Reserve’s FedLine network, which already serves over 10,000 financial institutions.
It is not CBDC and does not use blockchain
FedNow was developed as a complement to central bank digital currencies (CBDCs) and does not use blockchain or distributed ledger technology.
How is FedNow different from Mastercard and Visa payment systems?
Credit card transactions are not subject to irreversible settlement until one month after the initial payment date, allowing time for chargebacks, fund transfers, and other dispute resolution processes. Chargebacks for credit card payments are processed quickly but still need to overcome several hurdles before being credited to the recipient’s bank account, which can take several days.
In contrast, FedNow offers irreversible settlements and claims to be faster than current payment systems.
What does this mean for cryptocurrencies?
It seems that the Federal Reserve and central banks have recognized the need for a fast and always available payment system. However, this niche is already occupied by stablecoins. Cryptocurrencies currently offer an irreversible and decentralized payment system, while stablecoins are a direct competitor to both CBDCs and FedNow.
The competition has been going on for a while. Ripple, a centralized cryptocurrency, has been working with banks and businesses for quite some time and offers a system of fast, irreversible payments, but it has also been pursued by the SEC for a long time. And as BUSD and USDC have become more influential and accessible in the US, regulatory scrutiny and claims have emerged against banks and organizations that service these stablecoins.
The market is concerned about USDT, which, in terms of transaction volume, accounts for over 80% of the market. We see the first step towards squeezing USDT, which is claims against the Tron network, one of the cheapest and fastest on which the USDT token operates.
Cryptocurrencies will win the competition due to their openness, decentralization, and the freedom they provide to users. However, CBDC and FedNow are backed by huge resources from the US government and powerful lobbyists. The US consumer market is also the largest market in the world, which will play a negative role in this competition.
But I wouldn’t succumb to various conspiracy theories that emerged several years ago when CBDC was first seriously discussed. These theories suggested that the government could crash USDT or completely disrupt the market for major coins.
In this game, BTC is not of interest to anyone as it is too slow to compete with payment systems and is relatively safe.
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