Tag: Crypto

Research on a model of trust in Central Bank Digital Currency (CBDC) in Brazil, how trust in a two-tier CBDC with both the central and retail banks involved changes consumer trust

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(chapter 4 in book)
Central bank digital currencies (CBDC) have been implemented by some countries and trialled by many more. As the name suggests, the fundamental characteristics are that this is money that is digital, without a physical note or coin, and issued by a central bank.
The consumer has an increasing range of financial services to choose from including decentralised blockchain based cryptocurrencies. A CBDC may use blockchain technology, but it is centralized, so the institutions that support it play an important role. While being centralised may reduce some risks, it may inadvertently increase others. Despite the centralised top-down nature of this financial technology, it still needs to be adopted so the consumer’s perspective, particularly their trust in it, is very important. Each CBDC implementation can be different, and each country’s context can be different, therefore it is important to understand each case separately.
This research models the Brazilian consumer’s trust in their two-tier CBDC, where the central bank and the retail banks retain their current role (Zarifis and Cheng, 2025). This implementation is not a one tier solution where retail banks are bypassed in some ways, and the citizen interacts mostly with the central bank.
Existing research that identified six ways to build trust in a different CBDC (Zarifis and Cheng, 2024) was used as a basis. This research tested a model with one additional way to build trust, but this additional way to build trust was not supported. The seventh hypothesized way that is not supported is that the implementation process, including pilot implementations, would build trust. Therefore, despite the differences in the Brazilian CBDC, the original model applies here also which suggests the model applies for both two-tier solutions, and mixed one and two-tier solutions.

Figure 1. Model of consumer trust in Brazil’s two-tier CBDC, adapted from (Zarifis and Cheng 2024)

Three institutional, and three technological factors, are found to play a role. The six ways to build trust that are supported are: (a) Trust in government and central bank offering the CBDC, (b) expressed guarantees for those using it, (c) the favourable reputation of other active CBDCs, (d) the CBDC technology, the automation and limited human involvement necessary, (e) the trust building features of the CBDC wallet app, and (f) the privacy features of the CBDC wallet app and back-end processes.
It is important to develop user centered services in Brazil so that trust is built in the services themselves, and the government institutions that deliver them, sufficiently for broad adoption.

References
Zarifis A. & Cheng X. (2024) ‘The six ways to build trust and reduce privacy concern in a Central Bank Digital Currency (CBDC)’. In Zarifis A., Ktoridou D., Efthymiou L. & Cheng X. (ed.) Business digital transformation: Selected cases from industry leaders, London: Palgrave Macmillan, pp.115-138. https://doi.org/10.1007/978-3-031-33665-2_6 (open access)

Zarifis A. & Cheng X. (2025) ‘A model of trust in Central Bank Digital Currency (CBDC) in Brazil: How trust in a two-tier CBDC with both the central and retail banks involved changes consumer trust’ In Zarifis A. & Cheng X. (eds.) Fintech and the Emerging Ecosystems – Exploring Centralised and Decentralised Financial Technologies, Springer: Cham. https://doi.org/10.1007/978-3-031-83402-8_4 (open access)

New research: The second extended model of consumer trust in cryptocurrency payments, CRYPTOTRUST 2

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Cryptocurrencies’ popularity is growing despite short-term fluctuations. Peer-reviewed research into trust in cryptocurrency payments started in 2014 (Zarifis et al., 2014, 2015). While the model created then is based on proven theories from psychology, and supported by empirical research, a-lot has changed in the past 10 years. This research re-evaluates and extends the first model of trust in cryptocurrencies and delivers the second extended model of consumer trust in cryptocurrencies CRYPTOTRUST 2 (Zarifis & Fu, 2024) as seen in figure 1.

Figure 1: The second extended model of consumer trust in cryptocurrencies (CRYPTOTRUST 2)
Trust in a cryptocurrency is a multifaceted issue. While some believe that the consumer does not need to trust cryptocurrencies because they utilize blockchain, most people appreciate that you must trust cryptocurrencies, just as you must trust any other technology you use that involves some risk.

The first three variables of the model come from the individual’s psychology: Personal innovativeness is divided into (1) personal innovativeness in technology and (2) personal innovativeness in finance. These two influence (3) personal disposition to trust.

There are then six variables that come from the specific context, and not the person’s psychology: The first three are related to the cryptocurrency itself. These are (4) the stability in the cryptocurrency value, (5) the transaction fees and (6) reputation. Institutional trust is shaped by (7) regulation and (8) payment intermediaries that may be involved in fulfilling the transaction. The last contextual factor is (9) trust in the retailer. The six variables from the context influence (10) trust in the cryptocurrency payment which then, finally, influences (11) the likelihood of making the cryptocurrency payment.

Separating personal innovativeness to personal innovativeness in (1) technology and (2) finance, is a useful distinction as some consumers may have different levels of personal innovativeness for technology and finance. The analysis here supports that these are separate constructs.

This research shows that trust in cryptocurrencies has not changed fundamentally, but it has evolved. All the main actors in the value chain still play a role in building trust. There is more emphasis from the consumer on having a stable value and low transaction fees. This may be because consumers now have more experience with cryptocurrencies, and they are better informed. It may also be because there are more cryptocurrencies available, and other alternatives such as Central Bank Digital Currencies (CBDC), so consumers can review the many alternatives and try to identify the best one.

References

Zarifis A., Cheng X., Dimitriou S. & Efthymiou L. (2015) ‘Trust in digital currency enabled transactions model’, Proceedings of the Mediterranean Conference on Information Systems (MCIS), pp.1-8. https://aisel.aisnet.org/mcis2015/3/

Zarifis A., Efthymiou L., Cheng X. & Demetriou S. (2014) ‘Consumer trust in digital currency enabled transactions’, Lecture Notes in Business Information Processing-Springer, vol.183, pp.241-254. https://doi.org/10.1007/978-3-319-11460-6

Zarifis A. & Fu S. (2024) ‘The second extended model of consumer trust in cryptocurrency payments, CRYPTOTRUST 2’, Frontiers in Blockchain, vol.7, pp.1-11. https://doi.org/10.3389/fbloc.2024.1220031 (open access)

The NFT purchasing process and the challenges to trust at each stage

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A Non-Fungible Token, usually referred to by its acronym NFT, uses technology that involves data on a blockchain that cannot be changed after they have been added. Therefore, while they share similar blockchain technology with cryptocurrencies, the functionality is different. NFTs’ functionality enables them to be used to prove ownership of an intangible-digital, or tangible-physical, asset, and the associated rights the owner has. The most popular practical application of NFTs for digital assets is proving ownership of digital art, virtual items in computer games, and music.

The unique features of NFTs are becoming increasingly appealing as we spend more of our time online. Despite this increased popularity there is a lack of clarity over the final form this digital asset will take. The purchasing process in particular needs to be clarified.

This research developed a model of the purchasing process of NFTs and the role of trust in this process. The model identified that the purchasing process of NFTs has four stages and each stage requires trust.
You can see in the figure, the four stages in the purchasing process on the left, and the trust required in each of these stages along the center. Finally, on the right you see that trust in all four stages leads to trust in an NFT purchase.

Figure 1. Model of consumer trust at each stage of the NFT purchasing process

The four stages of the purchase are: First, set up a cryptocurrency wallet to pay for the NFT, and to be able to receive it. Second purchase cryptocurrency with the cryptocurrency wallet, third use the cryptocurrency wallet to pay for an NFT on an NFT marketplace and finally, there is the fourth, after sales service that may involve returns, or some other form of support.

The model that is supported by our analysis identified four stages to trust: First trust in the cryptocurrency wallet, second trust in the cryptocurrency purchase, third trust in the NFT marketplace, and fourth trust in after-sales services and resolving disputes.

Reference

Zarifis, A. & Castro, L.A. (2022) ‘The NFT purchasing process and the challenges to trust at each stage’, Sustainability, vol.14, no.24:16482, pp.1-13. Available from (open access): https://doi.org/10.3390/su142416482

The business models of NFTs and Fan Tokens, and the ways they build trust

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The interest in Non-fungible Tokens (NFTs) has ‘exploded’ recently, but it is not clear what final form they will take. This innovation will have difficulties reaching a wider audience until more clarity is achieved on two main issues: What exactly are the NFT business models, and how do they build trust. The findings of recent research (Zarifis and Cheng, 2022), illustrated in figure 1, show that there are four NFT business models:

Figure 1: The four NFT business models

(1) The first business model is an NFT creator: They can create digital art that is then minted as an NFT, and sold on an NFT platform. The NFT competitive advantages include having proof of irrefutable ownership, and the ability to sell a piece of art that is unique or limited to a low number. The reliability and transparency of the NFT, build trust with the consumer.

(2) The second business model is an NFT marketplace, selling creators’ NFTs: The competitive advantage of NFTs as part of this business model is once again the irrefutable ownership, and that it gives consumers digital art they can own. The purchase history of the consumers is transparent, so this gives insights into their interests. As with the previous business model, a community and trust are built between the collectors.

(3) The third business model is a Company offering their own NFT, typically a fan token: This business model has several NFT processes. These are to sell NFTs for profit, to give NFTs as rewards, make payment with fan tokens, give an NFT so that the person receiving it has certain utilities and rights, such as voting rights. The competitive advantages of NFTs, within this business model, are that they allow fans to feel closer to their team and builds a community and trust between the fans.

(4) The fourth business model is a Computer game with NFT sales: There can be in-game purchases of NFT minted virtual items, limited or unique in game purchases and players can be rewarded for playing, know as ‘play to earn’. This offers incentives to game developers to continue producing rare items, provides an ongoing revenue stream for existing games, and builds a community and trust between the players.

Reference

Zarifis A. & Cheng X. (2022) ‘The business models of NFTs and Fan Tokens and how they build trust’, Journal of Electronic Business & Digital Economics, vol.1, pp.1-14. Available from: https://doi.org/10.1108/JEBDE-07-2022-0021