I thank a number of colleagues who have helped me think about these issues, especially Chris Thompson, David Emery and Cameron Dark.

For the most recent survey conducted in late 2019, see James Caddy, Luc Delaney and Chay Fisher (2020), ‘Consumer Payment Behaviour in Australia: Evidence from the 2019 Consumer Payments Survey’, RBA Research Discussion Paper 2020-06. [1]

El Salvador is the one country where Bitcoin is now legal tender (along with the US dollar); the jury is still out on the experience.

The tokenisation of assets is the process of creating digital tokens that represent ownership rights to real-world assets, which can be traded, stored and transferred on DLT platforms. The use of DLT and ‘smart contracts’ (described below) in asset tokenisation has the potential to deliver a number of benefits, including improving the efficiency, transparency, liquidity and accessibility of asset markets. [3]

In proof-of-work verification, entities (‘miners’, which may or may not hold the cryptocurrency) compete to be the first to generate a solution for the computational or cryptographic problem that confirms that a block of proposed transactions is genuine, with the reward being some newly ‘mined’ tokens. As the computing power of competing miners (or consortiums of miners) increases, the difficulty of the cryptographic problem is increased. In proof-of-stake consensus, the rewards to successful verification (‘forging’) are typically shared between all validators, based on the amount of the cryptocurrency they hold or have ‘staked’. Innovations in the approach to transaction verification draw on a significant body of literature dealing with the incentives of different parties, which may have no relationships and may not trust each other, to behave honestly as opposed to attacking the system (by claiming to verify their own dishonest transactions). [4]

See, for example, Kenneth Rogoff (2021), ‘The Real Reason Crypto Exists’, Australian Financial Review, 8 June. [5]

The application of AML/CTF rules for cryptocurrencies is still evolving. It is possible to hold and transact in cryptocurrencies without any involvement with intermediaries through the use of unhosted or self-custodial wallets. Most jurisdictions have reporting requirements for large cryptocurrency transactions into or out of fiat currencies, with regulatory attention now turning to transactions at cryptocurrency exchanges involving unhosted wallets. Policy here is being led by the Financial Action Task Force and the US FinCEN. [6]

‘With respect to crypto, only the niche will survive. With limited use cases, crypto assets will, by definition, be not that valuable … [T]okens at the heart of programmable networks, will have to remain just that, of token value': Mark Carney (2021), ‘The Art of Central Banking in a Centrifugal World’, Andrew Crockett Memorial Lecture at the Bank for International Settlements, Basel, 28 June, p 11. [7]

Christopher J Waller (2021), ‘CBDC – A Solution in Search of a Problem?’, Speech at the American Enterprise Institute, Washington DC, 5 August. [8]

While it remains to be seen whether the proposed Diem stablecoin system will launch internationally, there is no indication that Australia is an early target market. Facebook noted in April that it is yet to take any of the steps that would be required to set up a local entity to provide Diem-based payment services to Australian households. It also indicated that even when it launched in other countries, its ‘Novi’ digital wallet would not be available for download in Australia or be open for Australian users to register because it is not licensed or authorised to provide services in Australia. [9]