Fiat Currencies Are About to Become Essential to Public Blockchains

Even if cryptocurrencies continue to grow, if we want blockchains to deliver upon their promise, we must be able to transact using traditional fiat currencies.

Traditional enterprises generate most of their revenue in those currencies and they also handle all their debts and payments in the same currencies.

In order for firms to transact on the blockchain, they will want to transact in those same currencies.

If I have a deal to buy a product at a set price in euros, and I execute that contract on a public blockchain, then I also want to settle it in euros, most likely.

One option for companies engaging in smart contracts on blockchains is to arrange payment settlement through the banking system separately and simply record that payment on the blockchain.

The best option for companies entering into business contracts on a blockchain is to complete the full exchange of asset tokens within the same blockchain.

At EY, we've taken to calling this a "Full cycle economic contract" as the gold standard for what enterprises will want to achieve using blockchains for commerce.

Ultimately, this means billions of dollars in tokenized fiat currencies must be available on the public blockchains to facilitate these transactions and payments.

If this path does come to pass it means that central banks will have to find a regulatory structure or approach that allows for multiple currencies and tokens to co-exist on public blockchains - networks they do not regulate or fully control.

It also means that private central-banking blockchains are not necessarily likely to have a big role ahead. We believe that there are mechanisms for regulators to control their own currencies in decentralized public networks, and I will dive into that and more in my next post.