Cryptoassets, smart contracts, stablecoins, tokenisation and the two different types of central bank digital currencies (CBDCs) – retail CBDCs and wholesale CBDCs. The world of finance and technology is quite confusing. Add onto this AI, APIs, BNPL, blockchain (Layer 1 and Layer 2), DLT [distributed-ledger technology], machine learning and more, and you get the idea. Oh, did I miss out meme coins, NFTs, DeFi, tokenisation and RPA? Oh, and let’s not forget the stalwarts like ECB to create RTP via TARGET2 for T+0.
The issue is obviously the integration of two industries dependent upon TLAs (three letter acronyms). This creates a catchment full of bias and inconsistencies, as picked up by the European Central Bank (ECB) who produced a research paper last month entitled: ‘Digital money and finance: a critical review of terminology’. Their issue is that non-fintech people – politicians and public sector organisations in particular – find the whole thing confusing. Ya don’t say!?
“A terminology has developed, which is […] often confusing, as a result of the speed of development of the field; the often technical nature of the functional architecture and processes of payment and settlement as well as the desire to represent these with intuitive and catchy terms; the even more technical world of IT architecture, database logic and processes that constitute cryptography, blockchain and DLT [distributed-ledger technology]; the strong interests of cryptoasset (in particular Bitcoin) owners, DeFi grassroot fans, DeFi investors and sometimes politicians and public sector organisations wanting to promote new technology and keep momentum and belief; terminological path-dependencies and hysteresis, in particular once terminology has been enshrined in laws and regulations,” the authors explain in a “non-technical summary.”
“Inconsistent and misleading terminology is however a serious issue in general […] because of the mix of plausible and less plausible use cases, large investments, the huge market capitalisation of unbacked cryptoassets and last but not least the massive presence of retail investors and enthusiasts with strong beliefs and expectations …
“Crypto-enthusiasts seem to perceive the world in a particular way that has been affected by language and also established economists and official institutions have promoted inconsistent terminology and contributed to settle in people’s minds conceptual misunderstandings.”
They go on to argue that “cryptoasset and crypto-infrastructure investors and DeFi grassroot fans have an interest to introduce and popularise terms which suggest the novelty and huge potential of DeFi.”
“Public sector institutions should be free of financial interests and marketing intentions and have a responsibility to help the public understand new technologies within the scope of their mandates …
“Sound terminology is the very basis for this. In a world of rapid innovations, terminology can initially appear adequate, but at a later stage turn out to be suboptimal or even inadequate and there is no reason to fatalistically accept path dependencies in this case, and thereby perpetuate confusion.”
Well, although I am basic, I ate the ECB for tackling this confusion as we need someone to ELI5 (if that lost you, checkout this link: Top GenZ Slangs That You Should Know).
