Your copy of the ledger
What's happening
Every copy of the ledger
Uses
- Cryptocurrencies (digital currencies such as Bitcoin): payments between people anywhere in the world, recorded on a public blockchain, with no bank in the middle.
- Supply chains: tracing food or goods from farm or factory to shop, so that buyers can check where something came from.
- Smart contracts: programs stored on a blockchain that carry out an agreement automatically, e.g. paying out when a delivery is recorded.
- Certificates and records: qualifications, property and land registers, and medical records that many organisations can check but nobody can quietly alter.
- Voting and identity have been trialled, though most governments haven't adopted them.
Benefits
- Records are very hard to change or delete once added, and every change is visible.
- No single organisation controls it, so there's no single point of failure.
- Payments can be sent across borders, at any time, without a bank account.
- Anyone can check the record (transparency).
Limitations
- Energy: proof of work makes miners' computers repeat billions of hashes, using a great deal of electricity and, where it isn't renewable, causing emissions. Proof of stake (which Ethereum moved to in 2022) uses far less.
- Volatility: cryptocurrency values can swing sharply in days, which makes them poor for pricing goods or saving.
- Regulation: rules differ from country to country and are still changing. Cryptocurrencies have been used for scams, ransomware payments and money laundering.
- Irreversible: a payment sent by mistake, or to a scammer, can't be reversed, and a lost private key means the coins can never be spent.
- Speed and scale: public blockchains handle far fewer transactions a second than card networks, and fees rise when they're busy.
- Rubbish in, rubbish out: it only shows a record hasn't changed since it was added, not that it was true.
- Privacy: every transaction is public. Names aren't shown, but addresses can often be traced to people.
Digital currencies
| Cryptocurrency | Central bank digital currency | Money in a bank account | |
|---|---|---|---|
| Who issues it | No one: a network of computers | The country's central bank | Commercial banks |
| Record kept | A public blockchain, many copies | The central bank's system | Each bank's own records |
| Value | Whatever buyers will pay: can be volatile | Same as the country's notes and coins | Same as the country's notes and coins |
| If it goes wrong | Usually no one to reverse a payment | Backed by the central bank | Banks can reverse fraud; deposits protected up to a limit in many countries |
A central bank digital currency would be a digital form of a country's cash. Several central banks are researching one, and the Reserve Bank of New Zealand has consulted on a digital form of cash. This page explains the technology; it isn't advice about buying anything.