Operationalizing The First CBDC- After Its First Year, Island Pay CEO, Richard Douglas, Shares His Experience

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Human wisdom comes in fits and starts. Although the pace of change has accelerated over the years, some difficult problems stand in the way of resistance to his thought and action. In this group there are problems that are difficult, which are not purely engineering problems, such as obtaining usable energy from quantum computing or small-scale fusion reactors. There is another group which, through its scale, also encompasses human behavior mediated through another type of complexity, politics and social phenomena in space and time; The climate challenge before humanity can be called in this category. Fortunately, CBDCs (Central Bank Digital Currency) fall into the tractable category of this group. There are no major engineering challenges the basic science solved many years ago, although the risks associated with failure have to be balanced with the benefits. There is also a behavioral element and a scaling problem, mainly with network effects, with both pros and cons.

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The first nationwide CBDC was released to production in the Bahamas more than a year ago. The provocative name of the currency is the sand dollar. The sand dollar is also the name of a creature in the genus Clypesteroidea. NS test (skeleton) Of these organisms, those that survive after death are seen on beaches. Bleached white, round, symmetrical, carved with a pentagram they remind people of Spanish silver dollars, which were washed ashore from the many ships dotting the Caribbean. Hence the name Sand Dollar. In contrast to these, a Bahamian CBDC called the Sand Dollar is a purely digital construct, representing a coin of the realm. There are many reasons why the Bahamas decided to issue a digital fiat coin. Part of the reason is the small population scale and remote nature of the island nation, as well as the culture and leadership of the islands, which is adventurous and risk-taking. They have relatively little to lose and a lot to gain from such a move.

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A diverse group of people inhabit the Caribbean, many of them from colder climates. Many of them are not only snow-birds, such as skua, jaegers and puffins, but also live there throughout the year. One such person is Richard Douglas, CEO and co-founder of Island Pay. Douglas was born and educated in Canada, but has lived in the Bahamas for a few decades or more. Being the CTO and co-founder of Secure Hosting for several years, he is a data security and privacy protection expert. As we shall see, a unique combination of local experience, qualifications, relationships, training, experience with existing products and a unique combination of other factors makes Island Pay a central bank partner to drive a revolutionary concept like a CBDC.

Island Pay was well placed to participate in the rollout of the first CBDC in production as the first to be licensed as a payment service provider and electronic money institution by the Central Bank of the Bahamas, and for the government at large. Supporting payment delivery. Of the Bahamas This places Island Pay at the heart of financial inclusion, serving the unbanked and underbanked. I spoke to Richard Douglas about the retrospective effect of Island Pay on Sand Dollar, a year into production, we had extensive conversations, as is always the case with my methods, Richard Douglas being most inclined to this kind of dialogue. Were.

We started by talking about the challenges. Having operated a hosting service focused on security and privacy, Douglas was very aware of the needs of a data center. Due to the lax attitude it was challenging to run a meaningful business continuity plan with proper 2-factor authentication and other security practices. I was also aware of this kind of box ticking compliance in investment banks in the US. However, the security process in the CBDC licensing regime needs to be properly spelled out and there is regulatory clarity all around. The cyber security audit of Island Pay was conducted by external agencies. As a result, there is an improvement in security awareness among all the participants, operators of data centers, other PSPs etc.

People are used to cash, 60% of people in Bahamas still work using cash. Even though the Island Pay wallet is ubiquitous, the number of transactions using sand dollars reaches only 50% of wallet holders, with only 10K out of 23K transactions/month using sand dollars. While these numbers are very small compared to the transaction volume in other countries, we have to remember that the total population of the Bahamas is around 400K, even the size of Brooklyn (also known as Kings County). Not even one-seventh of the population. City of New York City.

Wallet interoperability was a requirement of the Central Bank of the Bahamas that Richard Douglas was not happy with. If wallets were interoperable, Island Pay could rapidly bleed customers to others, he thought, with a type of Vampire vulnerability built into the wallet. However, to the pleasant surprise of Island Pay, they gained customers, mostly because their wallet was much better. Building a moat around your business, rather than forcing it to open, allows companies to compete on features and ease of use.

Douglas cited surprising use cases as an unexpected effect that also benefited early adopters such as Atlantis Resorts. Atlantis resorts relied on well-heeled foreigners, although Bahamians went to Atlantis to dine at their restaurants, to use its facilities, for day use. Payment for parking facilities is to be made in cash. After adopting the Island Pay Sand Dollar Wallet, customers could make these payments with ease, and merchants like Atlantis accepted them. Atlantis found that their Bahamian guests loved the convenience and increased their frequency and number of visits rapidly. Seeing the benefits of sand dollars, Atlantis is now planning to pay salaries using sand dollars. In the midst of the pandemic, this led to an increase in revenue and usage, which helped the merchant a lot. Another use case was that the incidence of employee theft at pizza shops decreased from 4% to 1.5% due to increased card usage.

By law, customers using Sand Dollar could not be charged transaction fees, with merchants also seeing their transaction fees drop from 3% to 4.5%. Furthermore, due to the instant settlement, sand dollars were deposited into merchant wallets almost instantly, improving their cash flow and liquidity position. Another victory for the traders.

Even though adoption was not as rapid as they expected, the Sand Dollar Project is a success for Island Pay. Furthermore, there has been a slew of inquiries for his expertise from around the world, especially from Wallet End, one of the only companies participating in the CBDC rollout. Although Richard Douglas was reluctant to talk about the identity of his prospects, it seemed that he was the central bank of many large economies. The beauty of working on a smaller wallet is that many of the kinks in design and usability can be worked out in a production environment while preparing to launch a wallet in a larger ecosystem.


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