Blockchain technology and tokenization have the potential to revolutionize financial services, and transform how money, assets and data move around the world. From streamlining transactions to reducing costs and unlocking new opportunities, blockchain adoption is on the rise—and the landscape is increasingly complex. To help navigate this dynamic space, as an industry leader we wanted to share a glossary of key terms to help cut through some of the confusion, and decrease the hype that can sometimes be associated with technological breakthroughs.
Central Bank Digital Currencies (CBDCs)
Central Bank Digital Currencies (CBDCs) are digital forms of national currency issued and regulated by central banks. Designed to complement cash, CBDCs intend to offer secure and efficient access to digital central bank money. They aim to enhance financial inclusion, reduce transaction costs and support innovation, while maintaining trust and stability in the monetary system. Several central banks globally are either exploring or piloting both retail and wholesale CBDC use-cases.
Cryptocurrency
Cryptocurrencies are digital currencies issued by non-bank entities that operate on public, decentralized blockchains. Unlike stablecoins, they are not backed 1:1 by cash or high-quality liquid assets held in trust. Cryptocurrencies do enable peer-to-peer value transfer without the need for any intermediaries, providing transparency and global accessibility. Well-known examples include Bitcoin (BTC) and Ether (ETH).
Deposit token
A deposit token is a digital representation of a bank deposit that operates on a public blockchain. Deposit tokens, such as JPM Coin, are supported by the same liquidity frameworks as traditional bank deposits. This makes them more scalable and better suited for institutional use-cases and integration into existing institutional financial systems.
The goal of deposit tokens is to give institutional clients, and their customers, a secure, credible way to transact on public blockchain for payments use-cases. Institutional clients can regard deposit tokens on their balance sheet with the same considerations typically applied to other deposit products. However, accounting treatment is ultimately subject to confirmation with a client’s auditors.
Distributed Ledger Technology (DLT)
Distributed ledger technology (DLT) refers to a digital system that records transactions across multiple computers, ensuring data is synchronized and replicated across multiple distributed (physically or geographically) computer network participants (nodes). Blockchains are a type of distributed ledger that use consensus mechanisms to technically validate new data added to the ledger, making them publicly verifiable and immutable. This improves transparency and traceability, helping to reduce fraud compared to traditional databases.
Permissioned blockchain
A private, permissioned blockchain restricts access to a select group of authorized participants. Only authorized users can read, write or validate transactions. These blockchains are often used for greater privacy, control, and efficiency as governance is managed by a central entity or consortium. Kinexys Digital Assets and Kinexys Digital Payments are examples of private, permissioned blockchains.
Programmable payments
Blockchain technology can enable programmable payments whereby payments automatically execute based on predefined conditions or triggers. For example, Trimont used Kinexys Digital Payments’ programmable payments solution to automate its complex, multi-step process to settle payments. By integrating triggers, conditions and actions into its payments processes, Trimont could provide its clients with faster payment solutions.
Public blockchain
A public blockchain is an open, decentralized network where anyone can access the ledger, run a node, and submit transactions without needing permission. The data is transparent and replicated across many independent computers making it tamper-evident and globally auditable. Public blockchains derive their security from decentralised consensus mechanisms – either directly (as in Layer 1 networks like Ethereum) or indirectly by anchoring to a decentralized Layer 1 (as in Layer 2 networks like Base).
Real-World Assets (RWA)
Real-world assets (RWA) are items with value in the real world, including bonds, equities, money market funds, real estate, commodities, art or other intellectual property. In the digital asset space, these assets can be represented as tokens – through tokenization – on a blockchain, enabling secure, transparent and efficient trading and broader access to investment opportunities.
Smart contracts
Smart contracts are self-executing digital programs that run on both public and private blockchains. They programmatically execute actions when predefined criteria are met, eliminating the need for intermediaries. Smart contracts can enhance transparency, security and efficiency, enabling automated transactions and complex processes across industries such as finance, supply chain and real estate.
Stablecoin
Stablecoins are generally issued by non-bank entities but unlike cryptocurrencies, they are backed 1:1 by cash and/or high-quality liquid asset reserves. Stablecoins are distinctly different to deposit tokens, primarily in terms of issuer, backer and regulation. Today, stablecoins are primarily used for retail use cases, including crypto trading, remittances, and as means of stored value.
Tokenization
Tokenization is the process of evidencing real-world or digital assets as digital tokens recorded on either a public or private blockchain. These tokens represent ownership or rights and can be traded securely and efficiently. Tokenization can enhance liquidity, transparency and accessibility, enabling innovative financial products, such as the tokenization of private equity funds through Kinexys Fund Flow.
Web3
Web3 refers to the next generation of the internet, built on decentralized technologies like blockchain. It aims to empower users with greater control over data, money, digital identity and assets. Web3 is enabling new business models through peer-to-peer transactions and smart contracts and is fostering innovation and transparency across digital platforms and services.