Among worldwide central banks, offering Central Bank Digital Currency (CBDC) wallets is viewed as one fundamental way to overcome a two-fronted challenge they currently contend with. On the one hand, consumers are using less physical cash, which subverts public confidence in the fiat monetary system. At the same time, central banks are not oblivious to the fact that Meta, Facebook, Google, and other big tech juggernauts have or still have aspirations to issue their own currencies. Given these platforms' gigantic user bases, introducing their respective digital currencies would further destabilize economic influence.
Additionally, people have less faith in the cryptocurrency market. After the crypto crash last year, there is a smaller appetite for storing digital currencies and assets, resulting in innovative cold wallet solutions.
For these reasons, the case for CBDC wallets has lately gained considerable attention from central banks, wallet solution providers, and smart card vendors active in the mobile/digital wallet space.
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When the Bank of International Settlements (BIS) recently surveyed 81 central banks, 90% indicated they are exploring the idea of CBDCs. Over half of the surveyed central banks are already developing CBDCs or conducting experiments.
As worldwide monetary systems get further intertwined with CBDCs, yesterday’s traditional banking services will be complemented with CBDC wallet solutions.
Wallet providers that plan to target central banks with CBDC wallet solutions must hit on the following four key points to facilitate a smooth transition:
At present, the CBDC market is undecided between hot and cold wallets. A hot wallet enables simplified use and takes away much of the stress for citizens to manage their own coins and private keys, but it is more vulnerable to malicious activity.
A cold wallet solution would provide greater security and self-determination. Still, it would be near impossible to recover if a private key is lost and would become complex for the less tech-savvy, such as the elderly.
Ultimately, the CBDC wallet solution must be as readily available to citizens as a standard payment card, as governments and central banks are also responsible for catering to non–mobile users. The regular smart card format, or dongle device, could be a potential solution to facilitate this.
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Security is one of the most important factors for banking customers. For example, a recent FICO consumer survey found that good fraud protection is the top consideration for Americans when they consider a new financial account.
If central banks can’t effectively protect user privacy when they use a CBDC wallet, the market will not realize its full potential. Therefore, there is ample opportunity for wallet providers to distinguish themselves—in the eyes of central banks—by incorporating reliable security solutions.
To keep CBDC wallets safe from malicious actors, such as cybercriminals, try using the following hardware security features can be utilized:
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