The Federal Reserve is using the Cypherium blockchain to power its FedNow Service for digital payments.  And as of mid-September, the system is now being made available to financial institutions for beta testing.

According to The Federal Reserve, the new instant payment service will allow financial institutions of all sizes to offer secure and effective immediate payment services in real time, 24 hours a day, 365 days a year, in every community in the United States.

The service was scheduled to go active in 2022, but that was pushed back to 2023.  Still, FedNow is already being marketed via fintech platforms like Finzly, where institutions are being encouraged to become “early adopters” of the service.

What (and Who) is Cypherium?

Cypherium is a permissionless blockchain architecture with its own crypto token, CPH.  It utilizes a hybrid consensus mechanism that features both proof-of-work and HotStuff Byzantine fault tolerance.

According to its website:

“Through connecting banks, payment services providers, payment networks and enterprises, Cypherium provides a seamless global payment experience. When information from banks enters the Cypherium blockchain, the Cypherium consensus algorithm performs the final validation of transactions, allowing any two organizations to clear the pending settlement between them. This saves financial organizations’ business flow, overall competitiveness, and the diversification of development activities. Cypherium supports Decentralized ID and ISO® 20022 messaging standards.”

The company is based in Manhattan, according to Crunchbase.

The co-founders are Sky Guo, CEO, and Dr. Solomon Zhang, CTO. Guo is a recognized blockchain expert who has advised Nasdaq and the UN. Zhang earned his PhD from the University of Science and Technology of China.

If the UN and China connections raise any alarm bells, wait. There’s more. Cypherium actually partnered with a number of Chinese cities to work on “projected central bank digital currencies” according to a 2020 Cointelegraph article.

The Cypherium connections to China and the UN apparently were not concerning to the Federal Reserve.

It may even be that Guo’s experience with CBDCs and China helped recommend Cypherium to the U.S. government.

Guo is featured in an interesting May 2021 discussion on the topic of CBDC privacy and interoperability, available on YouTube here

Guo also argued in 2020 that the then in-development Chinese Digital Yuan was too big to effectively surveil.

“China says we will have controllable anonymity. So the government will not monitor all the transactions, and technically speaking, they cannot do that,” Guo said in the Cointelegraph write-up. “Right now, every second in China there are hundreds of thousands of transactions happening. If the government wants to monitor that, it’s a huge cost.”

Despite Guo’s contention, China obviously manages to find the resources and wherewithal to closely monitor its citizens in a “social credit” system, where behaviors and activities are tracked and rewarded or punished, according to government objectives.

What’s more, since 2020, China’s zero COVID measures and lockdowns have only shown again the extraordinary granular control the regime can muster over its citizenry.

CPH Tokenomics

As far as tokenomomics, according to CoinMarketCap.com, the CPH token has a max supply of about 8.4 billion. But of that amount, only about 550 million tokens are currently circulating.

Price of the token briefly spiked above 9 cents in the fall of 2021. But it dropped from there, along with the rest of the crypto sector. It’s currently trading in the 3 cent range.

While the Cypherium link with FedNow has been known since spring, the buzz surrounding the blockchain has picked up recently. In July, fxstreet.com listed CPH as a promising project. It noted:

“Cypherium is another Web3-ready blockchain that bridges CBDC, DeFI and Web3 through protocol interoperability. It’s a hybrid consensus system that maximizes both decentralization and scalability without sacrificing one over the other through its Proof-of-Work and HotStuff consensus mechanisms.”

FedNow, which is expected to go live between May and July of 2023, is currently rolling out an early adopter program for banking institutions, which was highlighted during a 29 August talk by Fed Vice Chair Lael Brainard.

Brainard commented about the system:

“We have been working hard to deliver on time, but ultimately the number of American businesses and households that are able to access instant payments will depend on financial services providers making the necessary investments to upgrade our payments infrastructure. Together, we can ensure that all Americans have access to a modern and reliable instant payment system.”

Some Aren’t So Impressed

The FedNow initiative could effectively compete with companies like Visa, that provide debit and credit card services.

As reported by bankingdive.com, VISA CFO Vasant Prabhu said at a recent Deutsche Bank Technology Conference that he wasn’t worried about FedNow.

He observed that some places, like the UK, have had instant payments for nearly a decade, but that the systems have not made significant inroads in capturing market share.

Prabhu argued that credit cards have a track record of reliability and security, with avenues for disputing charges. He also noted that consumers like the loyalty reward programs that often come with their use.

“So there’s a real issue with, like, if I’m happy, why do I change?” Prabhu said, rhetorically placing himself in a consumer’s shoes. “Consumers are creatures of habit, and they are also very conservative when it comes to their money.”

TRENDSPOST: Prabhu may have a point concerning FedNow, but more generally, blockchain technology is offering a revolution in instant payments efficiency which no company or institution can easily ignore.

A real issue is whether the Federal Reserve will use its privileged position as the provider of financial liquidity and U.S. currency to suppress or even outlaw blockchain competition in the area of instant and cross border payments.

Ripple, Stellar and other projects providing solutions to banks and financial institutions might be in for more “competition by regulation” from Fed Reserve allied politicos who want to ensure that the current powers continue to control lucrative monetary services. 

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