As central bank digital currencies (CBDC) become a reality and the use of cryptocurrencies for payments becomes more widespread, how will these new digital currencies be available to everyone, anywhere, anytime? The physical nature of banknotes poses problems in the digital age. Developers are working to create hybrid banknotes to bridge the physical-digital gap. By Keesing Technologies.
Three types of hybrid banknotes
In an article for Yahoo! Finance, Franklin Noll, a recognized authority on the history of money, including banknotes and cryptocurrency, explains that there are three types of hybrid banknotes currently in development: smart banknotes, cryptonotes, and cryptocurrencies.
A smart banknote communicates with an electronic network via one or more RFID chips after a traditional banknote. Using a smartphone, a point-of-sale device, or other reader, its value can be moved back and forth across an electronic network. The status of a smart banknote, whether it contains its face value or not, is indicated by an electronic ink icon on the banknote. To transfer the value of a smart banknote to a bank account, the holder must:
- He touches the note to his smartphone and transfers the value over a network.
- The value icon then disappears, indicating that the smart note no longer has any value. The user can then turn the smart $10 note into a bank, which will recharge the note and put it back into circulation. Alternatively, the user can recharge the bill themselves by transferring $10 to it. At this point, the value icon reappears, indicating that the smart note has face value.
A CryptoNote is a hybrid banknote that carries public and private keys to access a cryptocurrency account. Cryptonotes can pass from hand to hand until a user wants to electronically transfer the value of the note. For example, a £10 note will have all the features it currently has, but will have a removable silver foil patch added. Underneath the foil patch will be a QR code containing the private key. There will also be a visible QR code representing the public key. If the foil patch is intact, indicating that no one has accessed the private key, the note retains its monetary value. To make a payment using a cryptocurrency, the user must:
- Scratch the foil patch to reveal the private key.
- They use their smartphones to scan QR codes for both public and private keys, accessing the relevant wallet.
- The money can then be transferred to complete the purchase.
Once the foil patch and value are removed from the note, the cryptonote is no longer usable. In this case, the note cannot be reprinted because there is physical damage (scratching) to the note. The missing foil patch also makes it clear that the note no longer has any value.
A crypto bill is a hybrid banknote that carries only the public key to the issuer’s cryptocurrency holdings. The private keys to individual accounts are held by the institution that issued the note. Crypto bills can be passed from hand to hand until a user wants to transfer the value of the note to an electronic account. To transfer the value, the owner must:
- The crypto note takes you to the issuer or their agent to transfer the value represented on the note. This step involves crypto accounts that only hold the backing value for all crypto notes, not the actual note itself.
- The note can be reprinted repeatedly and circulated until it runs out.
A cryptocurrency would be very similar to existing banknotes, but would require a QR code carrying a public key. No RFID chips or removable foil patches would be required. Like an existing banknote, the cryptocurrency bill would be passed from hand to hand and used in transactions over and over again; no access to an electronic network is required.
Looking to the near future
Bridging the gap between traditional banknotes and cryptocurrencies through the use of hybrid banknotes is a development worth following in the near future. This is another example of combining “old school” cash with cutting-edge digital technology. If consumers everywhere could use hybrid banknotes on a daily basis, it could truly be a game changer for modern society.
