With cryptocurrencies such as Bitcoin and Zcash playing an increasingly influential role in the payments ecosystem, countries worldwide are exploring the possibility of introducing their own national digital currencies. In fact, more than 70 percent of the world’s central banks are exploring the concept of central bank digital currencies (CBDCs).
While other central banks are talking about CBDCs, China is the first country to have put a CBDC into use, as trials of the e-RMB launched in four Chinese cities in April. Sweden is preparing to launch the e-Krona by 2023, and the Bahamas are trailing the Sand Dollar to try and reach unbanked parts of their population. Following a hearing by the Senate Banking Committee in June 2020, the US has also recently started looking at the future of a digital dollar.
Digital currencies are an electronic version of notes and coins, and refer to financial transactions stored on a blockchain ledger and held in digital wallets. Prompted by the impending ‘death of the wallet’ and the ongoing rise of alternative payment methods, digital currency has been rapidly gaining attraction from across the world. Now, the introduction of national CBDCs looks set to replace cash with a layer of traceable digital money that gives a number of benefits to the payment system.
As well as addressing the decline of physical cash, implementing digital currencies will not only increase transparency in the movement of money, encourage competition and innovation in the payments industry but it will also help to aid financial inclusion.
The importance of keeping digital currencies secure
While digital currencies offer many benefits, they also come with added security challenges. With early cryptocurrency transfers, users frequently stored their crypto keys on 'hot wallets'. These are devices, such as a laptop or phone, connected to the internet, which are convenient, but susceptible to hacking or digital currency heists. One of the largest crypto heists in recent years took place in November 2019, when a hacker managed to transfer over $50 million USD worth of the cryptocurrency Ethereum to an unknown address from the ‘hot-wallet’ of South Korean crypto-asset exchange Upbit.
To avoid similar raids on their funds, many cryptocurrency users today have reverted to a ‘cold wallet’ - external storage like a hard drive or USB stick. While these devices are seen as a safer option, there is still much more to be done to ensure security against potential hacks or theft and ensure wider usability to help the currencies reach mainstream adoption.
Biometric sensor technology can provide this much-needed privacy and security by linking such ‘cold wallets’, to an individual fingerprint. Much like traditional payment card transactions, that usually require a PIN or a signature, integrating fingerprint biometrics into digital wallets would offer simple, secure and personal authentication when making cryptocurrency transactions.
Adding a biometric fingerprint sensor to digital wallets would eradicate the risks of digital fraud and is a crucial, user-friendly way to ensure that only you can access your digital currency account.
Integrating digital currencies into our everyday lives
There is still a lot of uncertainty around digital currencies among consumers. So, as they start to be more commonly used as legal tender, it is important banks and payment providers ensure that the general public have easy access to them.
The concept of a digital wallet can be intimidating. It can be difficult to withdraw current cryptocurrency funds and many shops still aren’t equipped to handle such transactions. Until there is a seamless way to exchange digital money for goods and services, there is likely to be limited interest or take up of the currency by the public.
A biometric payment card solves this challenge. By introducing fingerprint authentication to payment cards and allowing these to be loaded with digital currency the payment process will be strikingly similar to one we are already familiar with. Thanks to biometric authentication, with the simple press of a finger, the customer can pay with digital currency securely, swiftly and with no complications, allowing for the seamless integration of digital currencies into our everyday payment processes.
Why strong currency authentication is key
Digital currencies will also need to comply with the PSD2 banking regulation and require Strong Customer Authentication (SCA) to validate users at the point of transaction.
From 14 September 2021, SCA will be required for all payment transactions in the European Economic Area, aiming to lower fraud and increase security for customers. SCA essentially means requesting two forms of authentication for every transaction above the contactless limit. This will require consumers to confirm extra security information, such as a password or PIN, or physical biometric authentication to transfer or pay with digital currencies across Europe. With passwords and PINs increasingly recognized as insecure, consumers are more worried about potential banking fraud.
Therefore, the payments industry needs to adopt fingerprint biometric authorization for digital currency transactions to provide greater security to protect consumers. It could also provide both consumers and issuers with higher confidence in a digital transaction if it is fully authenticated, further encouraging the uptake of national digital currencies among the population.
The role of biometrics in bolstering digital currencies
As digital currencies roll out more widely and continue to grow in popularity, it’s important that they are made more accessible for consumers. While new CBDCs begin to challenge the position of traditional reserve currencies, such as the Dollar, Sterling and RMB, banks and payment providers must provide consumers with a user-friendly and secure way to use these digital currencies in their daily lives.
Biometric sensors have been implemented in situations where privacy and security are critical components, such as in fingerprint scanning devices to authenticate personal ID and payment cards, accessing a place of work and to unlock mobile devices, to name a few. In many ways, the use of biometrics for digital currency is not any more complicated than the use of a contactless payment card. After decades of having to remember PINs, we are all becoming much more accustomed to making swift, contactless payments with our credit or debit cards. Incorporating fingerprint biometric authentication to digital currency wallets or payment cards is critical to enhance security, maintain the growth rate and gain consumer-wide acceptance of national digital currencies as they drive the payments ecosystem forward.
Vince Graziani, CEO, IDEX Biometrics ASA