Token-Based Payment Systems

TL;DR

The paper analyzes token-based payment systems and the role of distributed ledgers in enabling digital payments, distinguishing endogenous token-tracking (UTXO) vs oblivious tracking with proofs of provenance. It provides a detailed taxonomy across centralised/decentralised and private/public designs, and shows how DLT can support both account-based and token-based payments through ledger-based recording, commitments, and privacy-preserving mechanisms. It also clarifies the semantics of token access, possession, and control, and discusses practical considerations including privacy, issuance, and operator accountability. The work informs policy and design choices for digital currencies, private currencies, CBDCs, and stablecoins by mapping the trade-offs between transparency, traceability, privacy, and scalability.

Abstract

In this article, we consider the roles of tokens and distributed ledgers in digital payment systems. We present a brief taxonomy of digital payment systems that use tokens, and we address the different models for how distributed ledger technology can support digital payment systems in general. We offer guidance on the salient features of digital payment systems, which we comprehend in terms of consumer privacy, token issuance, and accountability for system operators.

Figures (3)

• Figure 1: Token-based digital payment systems whose ledgers track the state of individual assets.
• Figure 2: Token-based digital payment systems whose assets track their own state.
• Figure 3: A characterisation of possession and control of digital assets.