Blockchain Payments: Revolutionizing the Global Finance
Forward the Original Title: Why blockchain payments are making a comeback
As we approach the end of 2024, blockchain payments have suddenly accelerated. Many mainstream financial institutions have begun to increase their support for blockchain payments:
On September 26, BlackRock partnered with Ethena to issue the U.S. dollar stablecoin USDb.
On October 3, PayPal partnered with Ernst & Young to complete the first stablecoin commercial remittance using its self-issued PYUSD.
On October 3, VISA announced the VTAP platform to help institutions independently issue and operate stablecoins.
On October 3, SWIFT announced that it will launch a digital currency and digital asset trading experiment in 2025.
On October 16, Internet payment giant Stripe announced that it would cooperate with Paxos to support stablecoin payments.
On October 19, Societe Generale issued the euro stable currency EUR CoinVertible.
On October 21, Stripe announced the acquisition of stablecoin payment startup Bridge for $1.1 billion.
On October 22, the BRICS Pay payment system, which competes with SWIFT, was announced at the BRICS Summit in Kazan, Russia.
On October 24, Coinbase and A16Z jointly invested in Skyfire, a blockchain payment company that integrates AI technology.
Such a high-density incident cannot but arouse concern. People still remember that after Meta’s sprint for Libra failed in 2019 due to obstruction from all parties, blockchain payments, which were once regarded as having revolutionary potential, gradually faded out of sight. Two years ago, due to the collapse of the crypto asset market, most mainstream financial institutions avoided “digital currency” and “crypto assets”. The public gradually formed the impression that “blockchain has no future”. Some people believe that Blockchain is useless. Some people think that although blockchain is useful, there is too much resistance in the real world to promote it. So what happened now that blockchain payment suddenly heated up? Will blockchain payment make a comeback and enter a rapid development track?
Secret success
Between 2014 and 2019, blockchain technology aroused curiosity and enthusiasm around the world, and was once considered a revolutionary technology that could comprehensively upgrade the Internet and digital economy. The 2016 publication of Don Tapscott’s book “The Blockchain Revolution” represents the culmination of this optimism. However, in the past ten years, the application of blockchain has not achieved the expected success. On the contrary, most of the news about blockchain that the public gets from the media is negative, such as the failure of the highly anticipated Libra project, the failure of the blockchain logistics management system cooperated by IBM and Maersk, and the failure of the Australian ASX stock exchange area. The failure of the blockchain transformation project. In the Internet industry, many professionals believe that blockchain technology has not been able to find practical application scenarios for a long time and can only be used in some side theories. It is of little use in the “real world” and has been falsified. The mass media associates blockchain digital currency with speculation, hype, fraud, money laundering and the transfer of illegal funds, making this technology severely stigmatized in the public mind.
But in fact, completely contrary to the public impression, blockchain as a technology has actually achieved extremely amazing success and is currently the most advanced technology for cross-border value exchange and trusted data exchange.
In order to understand this, we must first understand “cross-border”.
The so-called cross-border here does not refer to geographical boundaries or administrative boundaries, but to the boundaries of trust across different financial systems, countries, organizations and individuals.
One of the main contradictions in the current digital economy isIt is the contradiction between the high efficiency of the Internet in information transmission and the low efficiency of value exchange between different entities due to insufficient trust. In other words, information can travel at the speed of light, but value travels across trust boundaries very efficiently.
Will this problem improve with the development of the Internet and artificial intelligence? Unfortunately, not only will it not improve, but it will get worse. As incidents of Internet intermediary platforms’ massive infringement of user data sovereignty and privacy continue to come to light, artificial intelligence’s ability to forge data becomes stronger and stronger, and people’s concepts of data sovereignty and privacy protection increase, and people will begin to lose trust in some intermediary platforms, thus establishing new trust boundaries. As a result, trust boundaries in the digital space will become increasingly dense. In the existing technical architecture, the operating efficiency of the digital economy will continue to decrease rather than increase.
The core advantage of blockchain payment is to help entities with different interests establish trust and reach consensus, thereby crossing the boundary of trust. For example, in cross-border payment scenarios, this means that trust can be established between different entities, thereby reducing reconciliation friction, improving efficiency, and reducing costs. The traditional payment system requires multiple intermediaries to carry out accounting, reconciliation and settlement respectively. Each link may cause friction and delay. Once an error occurs, it will be more cumbersome and time-consuming. Blockchain technology allows all parties to share the same set of data through distributed ledgers, update transaction information in real time, and avoid cumbersome reconciliation processes. This trust mechanism significantly improves the efficiency of cross-border payments and significantly reduces costs. Especially in complex transactions involving multiple countries and currencies, the advantages of blockchain are particularly prominent. Blockchain payments not only reduce dependence on intermediaries, but also reduce friction caused by the lack of mutual trust between different financial systems.
In the current economic situation, the advantages of blockchain across trust boundaries are concentrated in cross-border payments. Since 2015, central banks, large commercial banks and financial institutions in many countries have quietly conducted experiments on blockchain cross-border payments, with amazing results. For example, the Bank for International Settlements’ Monetary Bridge (mBridge) project [1] is a blockchain-based cross-border payment system started in 2019. By 2023, mBridge’s experimental results show that blockchain has overwhelming advantages over traditional payment systems such as SWIFT. Cross-border payment time has been shortened from days to seconds in the past, and transaction costs are close to zero. . Another case that illustrates this point is the cross-border micropayment experiment conducted by a major commercial bank in Australia. They split $100,000 into hundreds of small transactions for cross-border remittances, using the SWIFT system and paying a total handling fee of $1,240. However, using the blockchain system, the total handling fee for the same amount and batch of remittances was only 30 cents. In fact, the Libra global payment network, which the public thought had failed, has achieved great technical success. Although the project was terminated due to many non-technical factors, the public chain systems Aptos and Sui developed based on the project have been launched and have excellent technical performance.
Feedback from users also illustrates this point. It is estimated that the number of users holding digital currencies in the world is currently about 560 million, of which 82 million directly use blockchain[2]. Many individual users have said that once they start using blockchain for payments, they will never be able to go back to traditional banks. In the past two or three years, stablecoin payments in the “retail” field using public chains as channels have developed rapidly. According to VISA statistics[3], by the third quarter of 2024, the amount of stablecoin payments visible on the public chain alone will reach 1.8 trillion US dollars per month, and is accelerating. What’s even more shocking is that the application scenarios of stablecoins are “breaking out of the circle” and are being used in a large number of non-speculative trading scenarios. According to statistics from Circle, the issuing company of USDC, the second largest U.S. dollar stablecoin, since 2023, the usage of USDC in speculative scenarios has dropped by 90%, and the space left has been filled by real-world transfer payment scenarios. Especially in some blind spots and weak links of traditional banking services, stablecoin payment, as a general payment and value storage tool, is spreading like wildfire. Facts have prompted more and more people and institutions to put aside their prejudices and rethink the topic of blockchain payments.
Since blockchain payment has such great advantages and has made such great progress, why is the public not aware of it?
The first reason to bear the brunt is the current complex international political environment, which has caused some countries and economies to adopt short-sighted policies of suppression and containment in the face of such a revolutionary technology as blockchain.
The United States has set a very bad example in this regard. It not only strangled the Libra global payment network in the cradle, but also actively interfered in the development of international blockchain technology. A typical example is the mBridge project of the Bank for International Settlements. The project was launched in 2019, before the Russian-Ukrainian war broke out. But by the time the project was successful and the advantages of blockchain were confirmed, the Russia-Ukraine war had already broken out, and the United States and the West initiated financial sanctions to kick Russia out of the SWIFT system. Therefore, the results of mBridge are tantamount to announcing to the world that SWIFT is already a technically backward system and should be replaced by blockchain. This is obviously not conducive to maintaining financial sanctions against Russia. In addition, since the US dollar is deeply bound to the existing international currency settlement system, the impact of an advanced, rule-based, highly automated international settlement network on the US dollar is also a question that needs to be studied. Based on these considerations, the United States directly warned the Bank for International Settlements to be cautious in promoting the results of mBridge. This is an important reason why the results of this project have not been publicly disseminated on a large scale. The Bank for International Settlements recently announced that it is considering withdrawing from the mBridge project[4], which has also given the global public a clear signal that the United States today is not willing to suppress technological innovation in order to maintain the existing order. This is in stark contrast to the treatment AI receives. In fact, AI’s possible impact on the existing order will not be smaller than that of blockchain.
As the saying goes, there are also forces in commercial financial institutions that deliberately ignore and suppress the application of blockchain technology. Blockchain payment experiments conducted in many commercial banks are often led by marginal financial innovation departments rather than core business departments. Just like when Tesla invented alternating current and was actively suppressed by Edison. Innovators are suppressed by non-technical factors. The reason is still out of consideration for maintaining vested interests. The classic “agency problem” in economics is vividly reflected here.
Another important reason is the negative attitude of mainstream media. In the past few years, mainstream media has been keen on spreading the negative image of blockchain, and has habitually adopted a questioning, cold and rejection attitude towards all positive news related to blockchain, causing most ordinary users to avoid blockchain payment.
Various factors have led to blockchain becoming the most criticized and least understood technology by the public since nuclear weapons.
The success of blockchain payments is unstoppable
Can the above factors ban the development of blockchain for a long time or even permanently?
We think this is impossible. There are five reasons.
First, the competitive advantages of blockchain in cross-border payment, social payment and other scenarios are too prominent and cannot be concealed. In technology fashion, a new technology is considered a revolutionary innovation if it has more than ten times the performance and cost advantages compared to the previous generation technology. In the scenarios where blockchain payment is good at, compared to existing existing technology, blockchain payment is considered a revolutionary innovation. There are technologies with thousands to tens of thousands of times efficiency and cost advantages. For such a huge technological advantage, power, money, public opinion and other forces can only temporarily delay its development, but they absolutely cannot stop it in the long term.
Second, as people’s understanding of blockchain technology deepens and their understanding of its advantages becomes clearer, some concerns are eliminated. For example, financial regulators in various countries have generally worried that blockchain payments will lead to financial activities being out of regulation. However, with a series of blockchain innovation experiments in the past few years, people have gradually realized that blockchain actually provides stronger financial regulatory capabilities. For example, in the cross-border payment experiment conducted by Ample FinTech under the guidance of the Monetary Authority of Singapore (MAS), regulators can monitor the compliance status of financial activities in real time and can directly enforce the law by changing the status of smart contracts, which is a thousand times more efficient than current technology[5]. In addition, the impact of blockchain payments on the monetary and economic systems is also being more clearly assessed. At the Financial Street Forum held on October 23, 2024, Zhou Xiaochuan, former governor of the People’s Bank of China, analyzed the value of the mBridge project in promoting economic and trade exchanges between various regions in Asia, and pointed out with great care that the use of the US dollar is not mutually exclusive with mBridge, and whether the US dollar can continue to be a reserve currency and international trade settlement currency depends mainly on the United States itself[6]. These new understandings help to remove the shackles on the development of blockchain.
Third, the complex international political and economic landscape has created favorable conditions for the implementation of blockchain payments. The current international political and economic competition and confrontation are intensifying, and scientific and technological competition is regarded by all parties as an important winner. After the outbreak of the Russia-Ukraine war, the speculation that the US dollar and the SWIFT system could be weaponized as tools of economic and financial warfare was confirmed. In such a new situation, there is no force or coordination mechanism on a global scale that can shelve blockchain technology for a long time and abandon it for the purpose of safeguarding vested interests. On the contrary, due to competitive motives, once one party launches the application of blockchain payment, the other party cannot afford to compete with it with a technology that is a thousand times behind. Judging from the current situation, the unwritten tacit understanding formed by the world’s major economies to collectively curb blockchain financial applications that has been formed since 2019 is gradually loosening.
Fourth, the strong extended applications of blockchain technology will also urge or even force all parties to join the competition. At present, it is generally believed that the application of blockchain is concentrated in the financial field, but in fact, with the continuous development of cryptographic innovation, blockchain can greatly change the way we store, transmit, verify and use data. In some ways, blockchain is similar to the Internet. The main cost is to establish a connection. Once connected, a wide range of application scenarios will be unlocked. Thinking back to the 1990s, in order to access the Internet, infrastructure such as networks and routers needed to be laid, and users needed to install special equipment such as network cards or modems to connect to the Internet. This access cost is the main obstacle for users to use the Internet. But once users connect to the Internet on a large scale, a large number of innovative applications will emerge. Blockchain is similar. The biggest obstacle to promoting its application is to allow each user to establish his or her own digital identity and connect to the blockchain through a digital wallet. It’s not easy and involves a lot of user education and marketing. But once this barrier is broken, a large number of innovative applications will emerge, from e-commerce consumption to data management, from organizational collaboration to military applications, and the paradigm of how people use the network will change. Due to this strong extension, no competing parties can bear the risk of long-term inaction.
Fifth, support from young people. In the 2024 US election, candidates from both parties have expressed support for blockchain technology, with Trump being particularly active. According to Trump’s election campaign proposition, he will actively promote the development of digital assets and blockchain after taking office, especially promoting the rapid passage of the “21st Century Financial Innovation and Technology Act”, the famous FIT21 Act[7], to provide blockchain Establish a new regulatory framework for the development of blockchain and digital assets. Why have cryptocurrencies become a topic in the election? Because both parties want to win over young people. Whether it is young people in Africa who cannot open bank accounts or e-commerce business operators in Southeast Asia who need to quickly settle payments with each other, once they cross the entry threshold and experience the advantages of blockchain payment, they will never tire of it. Therefore, the real trend now is that stablecoin payments on the blockchain are increasingly used outside of non-speculative transaction scenarios, and its development speed and scale have exceeded original expectations. Once many young people overcome the initial strangeness and master the basic operations of blockchain payment, they are never willing to return to the traditional financial system. Any attempt to use coercive means to stop this trend will inevitably be in vain in the long run. Not only that, but what is even more unfavorable for traditional finance is that the more crypto-finance develops, the greater the regulatory pressure traditional finance will face, which will cause more trouble and friction to its customers and make it less popular with young people. Like, this vicious cycle is hard to break. Today, in many countries and regions, the service quality of traditional banks is declining rapidly, complaints from ordinary users about banking services are accumulating at an accelerating rate, and trust is rapidly being lost. In the long run, no country can permanently suppress the application of blockchain financial technology in order to maintain the existing financial management model. Traditional financial institutions will either embrace blockchain or be disrupted.
Therefore, we believe that although the application of blockchain has taken a detour in the past decade, with payment as a breakthrough, the path for large-scale application of blockchain has gradually become clear. The recent frequent incidents in the Web3 payment field are a clear signal. In the near future, payment will promote the large-scale implementation of blockchain applications in the commercial and consumer markets, stimulate the emergence of innovation, and produce significant economic and technological consequences.
Why blockchain payment suddenly made a counterattack
Blockchain payment has taken a curve of opening high and closing low. After 2015, when the central banks of some countries were building new generation payment systems such as CBDC, they once favored blockchain technology. However, after repeated inspections, not only did they not adopt it, but they decided to abandon it. Ordinary users are not even willing to try this new payment technology. After the initial excitement about blockchain, the financial technology community’s enthusiasm quickly waned. After 2021, few mainstream financial professionals are actively involved in the research and development of blockchain payments. Under such circumstances, the rapid counterattack of blockchain payment in the past year is unexpected. Why does this happen? We believe that the main reasons are as follows:
First, the blockchain infrastructure has gradually improved, shortcomings have been made up, and its inherent “technological gene” advantages have been verified.
In terms of its “technical gene”, blockchain payment is a revolutionary new generation technology that fundamentally surpasses the current mainstream payment system. Its biggest advantage is the trinity of transfer, clearing, and settlement, which completely eliminates the delays and frictions caused by multiple ledgers recording accounts and post-reconciliation, greatly improving payment and settlement efficiency.
However, due to the imperfect infrastructure of blockchain in the past, users often had to pay high transaction fees and wait for several minutes to dozens of minutes to complete the payment. This offset the inherent efficiency advantage of blockchain and made ordinary users feel inefficient.
In recent years, with the development of high-performance public chain and second-layer network technology, blockchain infrastructure has made tremendous technological progress, and efficiency and cost advantages have been fully reflected. Some high-performance blockchains capable of executing thousands of transactions per second have been put into practical applications. Early speculations about the inherent advantages of blockchain payments have proven to be borne out due to improvements in technology and infrastructure. In the face of thousands of times of performance and cost advantages, all doubts about the usefulness of blockchain are meaningless.
Second, stablecoins provide a pragmatic answer to the question of “source of value” and become a consensus medium of exchange and value measure.
In the early days of blockchain, a hot topic about it was the source of value of digital currencies such as Bitcoin and Ethereum. Various currency experts, economists, historians and philosophers all came forward to participate in the discussion, completing the theoretical enlightenment of a generation on currency and banking in a short period of time. However, whether people approve or disapprove of Bitcoin’s “digital gold” positioning, it cannot change the reality that its price has skyrocketed and plummeted. Whether an asset that rises and falls sharply has a solid value foundation can be discussed, but it is indisputable that it cannot be used as a medium of transaction and a measure of value.
Stablecoins bypass the philosophical debate on the source of value, solve this problem with a pragmatic attitude, and reconcile the contradictions between the crypto asset community, supervision and the traditional financial industry, becoming a transaction medium and value scale with broad consensus, and becoming the mainstream “currency” in blockchain payments. At present, there are more than 180 stablecoins in circulation, and 26 countries and regions have issued stablecoin regulatory frameworks. The total scale of stablecoins exceeds US$170 billion, supporting US$1.8 trillion in transactions per month, which is equivalent to all stablecoins circulating ten times a month. This is itself a proof of the superiority of blockchain technology.
Third, the inherent low transaction cost advantage of blockchain strengthens the network effect.
The multiple characteristics of blockchain have reduced the transaction costs of blockchain payments in all aspects. Among them, autonomous accounts greatly lower the threshold for joining the network. Self-custody of user assets greatly reduces trust friction. Smart contracts reduce the cost of transaction negotiation, contract formulation and contract execution. Transaction records are transparent and cannot be tampered with, which reduces the cost of evidence collection and arbitration in disputes. Naturally without time and space boundaries, it operates 7x24 without boundaries, reducing friction in transaction time. It can be said that the blockchain has reduced friction in all aspects of the transaction, which makes blockchain, as a payment network, more lubricated than the traditional payment system.
Fourth, geopolitical conflicts force blockchain to accelerate its development.
In recent years, international geopolitical conflicts have intensified, the pattern of globalization has been shattered, barriers to international trade and exchanges have become increasingly clear, and trust boundaries have become increasingly dense. In the original era of globalization, all entities signed international agreements and maintained basic trust with each other. On this basis, once abnormalities were discovered, manpower was used for coordination, investigation, and law enforcement. In the new era, trust among various subjects has been greatly weakened, and abnormal situations occur frequently. Continuing to maintain the manual supervision model not only overwhelms the regulators themselves, but also brings more and more problems to the vast majority of law-abiding companies and individuals. The more unbearable friction becomes, the more application of new technologies becomes unstoppable. Blockchain is currently the only relatively mature new technology that is expected to bring breakthroughs in this field.
Of course, we must also see that due to immaturity of technology and other reasons, blockchain payment still faces many challenges, such as:
The user experience is very different from traditional Internet applications and has a higher entry barrier.
There are still problems such as drastic fluctuations in handling fees and difficulties in key management.
Excessive data transparency makes the blockchain unable to adapt to many business scenarios that require privacy protection.
Smart contracts pose higher security risks in practice.
Requires a full set of supporting infrastructure support such as digital identity, digital certificates, and new compliance frameworks.
However, with the continuous advancement of technology and the popularization of user education, these problems will be gradually solved in the future.
Regulation is a challenge, but also a breakthrough
An issue that must be mentioned is that blockchain payment currently has the “advantage” of low supervision, and this is caused by two reasons. On the one hand, this is because the current global regulatory system for blockchain payments has not yet been established. On the other hand, because of the self-custody of assets, the compliance responsibilities that originally need to be borne by intermediaries are eliminated. Low regulation is actually an important reason for many people to use blockchain payments.
However, blockchain payment technology does not naturally exclude regulation. On the contrary, smart contracts themselves can be excellent regulatory tools. However, the current financial regulatory agencies in most countries around the world have reacted very negatively to this issue. They have basically adopted the approach of covering their ears and deceiving themselves and others. They promulgated strict one-size-fits-all rules even though they knew they were unable to implement them. The result is It blocks normal innovation and application exploration, but leaves the vast majority of illegal transactions unchecked and powerless. It is in this context that the US FIT21 bill is of particular interest. This bill adopts a positive attitude, combining blocking and dredging, focusing on dredging, and incorporating blockchain and digital assets into the new framework for reasonable guidance. If implemented, it may open up a new situation of value Internet innovation.
Although blockchain payments have made significant progress, the key to its future development lies in the regulatory and policy attitudes of various countries. Competition among different countries and economies in the field of blockchain payments is increasingly fierce, and regulation and policy have become key factors that determine victory or defeat. Those countries that can actively promote the development of blockchain payments will occupy a favorable position in the future financial system.
In the international competition landscape, countries have completely different attitudes towards blockchain technology. Some countries adopt open and supportive policies to attract blockchain companies and investors, and promote the legalization and widespread application of related technologies; while other countries have a cautious or repressive attitude towards blockchain payments, causing them to gradually lag behind in technological development and industrial layout. Taking the United States as an example, in the 2024 U.S. election, candidates from both parties have expressed support for blockchain, which marks a positive shift in regulatory policy. Russia, Brazil and other countries are actively exploring blockchain payment systems independent of SWIFT through projects such as BRICS Pay to get rid of the constraints of the traditional financial system.
Policy and regulatory uncertainty are the biggest obstacles to the current development of blockchain payments, but they are also the most potential breakthrough. As technology continues to advance and user education becomes more widespread, many countries and economies will have to reexamine their stance on blockchain payments. Active and enlightened regulatory policies will promote the popularity of blockchain payments around the world, while countries that hold a wait-and-see or repressive attitude towards policies will definitely be at a disadvantage in future financial and economic competition.
Summary
Blockchain payment is going through a critical stage from exploration to application, and its core advantages are gradually recognized by financial institutions and users in various countries. As discussed in this article, blockchain payments are becoming a force that cannot be ignored in the global financial system due to their ability to cross trust boundaries, greatly improved efficiency, reduced costs, and widespread support from younger generations. Although there are still challenges, in the long run, openness and positivity in policies and regulations will be the key to promoting the comprehensive development of blockchain payments, and the potential of this technology will continue to be continuously released, leading the transformation of the future digital economy and the Internet.
[1] https://en.wikipedia.org/wiki/MBridge
[2] https://kruschecompany.com/blockchain-sector-statistics-and-facts/…
[3] https://visaonchainanalytics.com
[6] https://mp.weixin.qq.com/s/e52cqAH-VLeOjqvj0CLLoA…
[7] https://en.wikipedia.org/wiki/Financial_Innovation_and_Technology_for_the_21st_Century_Act
Disclaimer：
- This article is reprinted from [Meng Yan Shao Qing]. Forward the original title “Why blockchain payments are making a comeback”. All copyrights belong to the original author [Meng Yan Shao Qing]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
- Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
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Summary
Forward the Original Title: Why blockchain payments are making a comeback
As we approach the end of 2024, blockchain payments have suddenly accelerated. Many mainstream financial institutions have begun to increase their support for blockchain payments:
On September 26, BlackRock partnered with Ethena to issue the U.S. dollar stablecoin USDb.
On October 3, PayPal partnered with Ernst & Young to complete the first stablecoin commercial remittance using its self-issued PYUSD.
On October 3, VISA announced the VTAP platform to help institutions independently issue and operate stablecoins.
On October 3, SWIFT announced that it will launch a digital currency and digital asset trading experiment in 2025.
On October 16, Internet payment giant Stripe announced that it would cooperate with Paxos to support stablecoin payments.
On October 19, Societe Generale issued the euro stable currency EUR CoinVertible.
On October 21, Stripe announced the acquisition of stablecoin payment startup Bridge for $1.1 billion.
On October 22, the BRICS Pay payment system, which competes with SWIFT, was announced at the BRICS Summit in Kazan, Russia.
On October 24, Coinbase and A16Z jointly invested in Skyfire, a blockchain payment company that integrates AI technology.
Such a high-density incident cannot but arouse concern. People still remember that after Meta’s sprint for Libra failed in 2019 due to obstruction from all parties, blockchain payments, which were once regarded as having revolutionary potential, gradually faded out of sight. Two years ago, due to the collapse of the crypto asset market, most mainstream financial institutions avoided “digital currency” and “crypto assets”. The public gradually formed the impression that “blockchain has no future”. Some people believe that Blockchain is useless. Some people think that although blockchain is useful, there is too much resistance in the real world to promote it. So what happened now that blockchain payment suddenly heated up? Will blockchain payment make a comeback and enter a rapid development track?
Secret success
Between 2014 and 2019, blockchain technology aroused curiosity and enthusiasm around the world, and was once considered a revolutionary technology that could comprehensively upgrade the Internet and digital economy. The 2016 publication of Don Tapscott’s book “The Blockchain Revolution” represents the culmination of this optimism. However, in the past ten years, the application of blockchain has not achieved the expected success. On the contrary, most of the news about blockchain that the public gets from the media is negative, such as the failure of the highly anticipated Libra project, the failure of the blockchain logistics management system cooperated by IBM and Maersk, and the failure of the Australian ASX stock exchange area. The failure of the blockchain transformation project. In the Internet industry, many professionals believe that blockchain technology has not been able to find practical application scenarios for a long time and can only be used in some side theories. It is of little use in the “real world” and has been falsified. The mass media associates blockchain digital currency with speculation, hype, fraud, money laundering and the transfer of illegal funds, making this technology severely stigmatized in the public mind.
But in fact, completely contrary to the public impression, blockchain as a technology has actually achieved extremely amazing success and is currently the most advanced technology for cross-border value exchange and trusted data exchange.
In order to understand this, we must first understand “cross-border”.
The so-called cross-border here does not refer to geographical boundaries or administrative boundaries, but to the boundaries of trust across different financial systems, countries, organizations and individuals.
One of the main contradictions in the current digital economy isIt is the contradiction between the high efficiency of the Internet in information transmission and the low efficiency of value exchange between different entities due to insufficient trust. In other words, information can travel at the speed of light, but value travels across trust boundaries very efficiently.
Will this problem improve with the development of the Internet and artificial intelligence? Unfortunately, not only will it not improve, but it will get worse. As incidents of Internet intermediary platforms’ massive infringement of user data sovereignty and privacy continue to come to light, artificial intelligence’s ability to forge data becomes stronger and stronger, and people’s concepts of data sovereignty and privacy protection increase, and people will begin to lose trust in some intermediary platforms, thus establishing new trust boundaries. As a result, trust boundaries in the digital space will become increasingly dense. In the existing technical architecture, the operating efficiency of the digital economy will continue to decrease rather than increase.
The core advantage of blockchain payment is to help entities with different interests establish trust and reach consensus, thereby crossing the boundary of trust. For example, in cross-border payment scenarios, this means that trust can be established between different entities, thereby reducing reconciliation friction, improving efficiency, and reducing costs. The traditional payment system requires multiple intermediaries to carry out accounting, reconciliation and settlement respectively. Each link may cause friction and delay. Once an error occurs, it will be more cumbersome and time-consuming. Blockchain technology allows all parties to share the same set of data through distributed ledgers, update transaction information in real time, and avoid cumbersome reconciliation processes. This trust mechanism significantly improves the efficiency of cross-border payments and significantly reduces costs. Especially in complex transactions involving multiple countries and currencies, the advantages of blockchain are particularly prominent. Blockchain payments not only reduce dependence on intermediaries, but also reduce friction caused by the lack of mutual trust between different financial systems.
In the current economic situation, the advantages of blockchain across trust boundaries are concentrated in cross-border payments. Since 2015, central banks, large commercial banks and financial institutions in many countries have quietly conducted experiments on blockchain cross-border payments, with amazing results. For example, the Bank for International Settlements’ Monetary Bridge (mBridge) project [1] is a blockchain-based cross-border payment system started in 2019. By 2023, mBridge’s experimental results show that blockchain has overwhelming advantages over traditional payment systems such as SWIFT. Cross-border payment time has been shortened from days to seconds in the past, and transaction costs are close to zero. . Another case that illustrates this point is the cross-border micropayment experiment conducted by a major commercial bank in Australia. They split $100,000 into hundreds of small transactions for cross-border remittances, using the SWIFT system and paying a total handling fee of $1,240. However, using the blockchain system, the total handling fee for the same amount and batch of remittances was only 30 cents. In fact, the Libra global payment network, which the public thought had failed, has achieved great technical success. Although the project was terminated due to many non-technical factors, the public chain systems Aptos and Sui developed based on the project have been launched and have excellent technical performance.
Feedback from users also illustrates this point. It is estimated that the number of users holding digital currencies in the world is currently about 560 million, of which 82 million directly use blockchain[2]. Many individual users have said that once they start using blockchain for payments, they will never be able to go back to traditional banks. In the past two or three years, stablecoin payments in the “retail” field using public chains as channels have developed rapidly. According to VISA statistics[3], by the third quarter of 2024, the amount of stablecoin payments visible on the public chain alone will reach 1.8 trillion US dollars per month, and is accelerating. What’s even more shocking is that the application scenarios of stablecoins are “breaking out of the circle” and are being used in a large number of non-speculative trading scenarios. According to statistics from Circle, the issuing company of USDC, the second largest U.S. dollar stablecoin, since 2023, the usage of USDC in speculative scenarios has dropped by 90%, and the space left has been filled by real-world transfer payment scenarios. Especially in some blind spots and weak links of traditional banking services, stablecoin payment, as a general payment and value storage tool, is spreading like wildfire. Facts have prompted more and more people and institutions to put aside their prejudices and rethink the topic of blockchain payments.
Since blockchain payment has such great advantages and has made such great progress, why is the public not aware of it?
The first reason to bear the brunt is the current complex international political environment, which has caused some countries and economies to adopt short-sighted policies of suppression and containment in the face of such a revolutionary technology as blockchain.
The United States has set a very bad example in this regard. It not only strangled the Libra global payment network in the cradle, but also actively interfered in the development of international blockchain technology. A typical example is the mBridge project of the Bank for International Settlements. The project was launched in 2019, before the Russian-Ukrainian war broke out. But by the time the project was successful and the advantages of blockchain were confirmed, the Russia-Ukraine war had already broken out, and the United States and the West initiated financial sanctions to kick Russia out of the SWIFT system. Therefore, the results of mBridge are tantamount to announcing to the world that SWIFT is already a technically backward system and should be replaced by blockchain. This is obviously not conducive to maintaining financial sanctions against Russia. In addition, since the US dollar is deeply bound to the existing international currency settlement system, the impact of an advanced, rule-based, highly automated international settlement network on the US dollar is also a question that needs to be studied. Based on these considerations, the United States directly warned the Bank for International Settlements to be cautious in promoting the results of mBridge. This is an important reason why the results of this project have not been publicly disseminated on a large scale. The Bank for International Settlements recently announced that it is considering withdrawing from the mBridge project[4], which has also given the global public a clear signal that the United States today is not willing to suppress technological innovation in order to maintain the existing order. This is in stark contrast to the treatment AI receives. In fact, AI’s possible impact on the existing order will not be smaller than that of blockchain.
As the saying goes, there are also forces in commercial financial institutions that deliberately ignore and suppress the application of blockchain technology. Blockchain payment experiments conducted in many commercial banks are often led by marginal financial innovation departments rather than core business departments. Just like when Tesla invented alternating current and was actively suppressed by Edison. Innovators are suppressed by non-technical factors. The reason is still out of consideration for maintaining vested interests. The classic “agency problem” in economics is vividly reflected here.
Another important reason is the negative attitude of mainstream media. In the past few years, mainstream media has been keen on spreading the negative image of blockchain, and has habitually adopted a questioning, cold and rejection attitude towards all positive news related to blockchain, causing most ordinary users to avoid blockchain payment.
Various factors have led to blockchain becoming the most criticized and least understood technology by the public since nuclear weapons.
The success of blockchain payments is unstoppable
Can the above factors ban the development of blockchain for a long time or even permanently?
We think this is impossible. There are five reasons.
First, the competitive advantages of blockchain in cross-border payment, social payment and other scenarios are too prominent and cannot be concealed. In technology fashion, a new technology is considered a revolutionary innovation if it has more than ten times the performance and cost advantages compared to the previous generation technology. In the scenarios where blockchain payment is good at, compared to existing existing technology, blockchain payment is considered a revolutionary innovation. There are technologies with thousands to tens of thousands of times efficiency and cost advantages. For such a huge technological advantage, power, money, public opinion and other forces can only temporarily delay its development, but they absolutely cannot stop it in the long term.
Second, as people’s understanding of blockchain technology deepens and their understanding of its advantages becomes clearer, some concerns are eliminated. For example, financial regulators in various countries have generally worried that blockchain payments will lead to financial activities being out of regulation. However, with a series of blockchain innovation experiments in the past few years, people have gradually realized that blockchain actually provides stronger financial regulatory capabilities. For example, in the cross-border payment experiment conducted by Ample FinTech under the guidance of the Monetary Authority of Singapore (MAS), regulators can monitor the compliance status of financial activities in real time and can directly enforce the law by changing the status of smart contracts, which is a thousand times more efficient than current technology[5]. In addition, the impact of blockchain payments on the monetary and economic systems is also being more clearly assessed. At the Financial Street Forum held on October 23, 2024, Zhou Xiaochuan, former governor of the People’s Bank of China, analyzed the value of the mBridge project in promoting economic and trade exchanges between various regions in Asia, and pointed out with great care that the use of the US dollar is not mutually exclusive with mBridge, and whether the US dollar can continue to be a reserve currency and international trade settlement currency depends mainly on the United States itself[6]. These new understandings help to remove the shackles on the development of blockchain.
Third, the complex international political and economic landscape has created favorable conditions for the implementation of blockchain payments. The current international political and economic competition and confrontation are intensifying, and scientific and technological competition is regarded by all parties as an important winner. After the outbreak of the Russia-Ukraine war, the speculation that the US dollar and the SWIFT system could be weaponized as tools of economic and financial warfare was confirmed. In such a new situation, there is no force or coordination mechanism on a global scale that can shelve blockchain technology for a long time and abandon it for the purpose of safeguarding vested interests. On the contrary, due to competitive motives, once one party launches the application of blockchain payment, the other party cannot afford to compete with it with a technology that is a thousand times behind. Judging from the current situation, the unwritten tacit understanding formed by the world’s major economies to collectively curb blockchain financial applications that has been formed since 2019 is gradually loosening.
Fourth, the strong extended applications of blockchain technology will also urge or even force all parties to join the competition. At present, it is generally believed that the application of blockchain is concentrated in the financial field, but in fact, with the continuous development of cryptographic innovation, blockchain can greatly change the way we store, transmit, verify and use data. In some ways, blockchain is similar to the Internet. The main cost is to establish a connection. Once connected, a wide range of application scenarios will be unlocked. Thinking back to the 1990s, in order to access the Internet, infrastructure such as networks and routers needed to be laid, and users needed to install special equipment such as network cards or modems to connect to the Internet. This access cost is the main obstacle for users to use the Internet. But once users connect to the Internet on a large scale, a large number of innovative applications will emerge. Blockchain is similar. The biggest obstacle to promoting its application is to allow each user to establish his or her own digital identity and connect to the blockchain through a digital wallet. It’s not easy and involves a lot of user education and marketing. But once this barrier is broken, a large number of innovative applications will emerge, from e-commerce consumption to data management, from organizational collaboration to military applications, and the paradigm of how people use the network will change. Due to this strong extension, no competing parties can bear the risk of long-term inaction.
Fifth, support from young people. In the 2024 US election, candidates from both parties have expressed support for blockchain technology, with Trump being particularly active. According to Trump’s election campaign proposition, he will actively promote the development of digital assets and blockchain after taking office, especially promoting the rapid passage of the “21st Century Financial Innovation and Technology Act”, the famous FIT21 Act[7], to provide blockchain Establish a new regulatory framework for the development of blockchain and digital assets. Why have cryptocurrencies become a topic in the election? Because both parties want to win over young people. Whether it is young people in Africa who cannot open bank accounts or e-commerce business operators in Southeast Asia who need to quickly settle payments with each other, once they cross the entry threshold and experience the advantages of blockchain payment, they will never tire of it. Therefore, the real trend now is that stablecoin payments on the blockchain are increasingly used outside of non-speculative transaction scenarios, and its development speed and scale have exceeded original expectations. Once many young people overcome the initial strangeness and master the basic operations of blockchain payment, they are never willing to return to the traditional financial system. Any attempt to use coercive means to stop this trend will inevitably be in vain in the long run. Not only that, but what is even more unfavorable for traditional finance is that the more crypto-finance develops, the greater the regulatory pressure traditional finance will face, which will cause more trouble and friction to its customers and make it less popular with young people. Like, this vicious cycle is hard to break. Today, in many countries and regions, the service quality of traditional banks is declining rapidly, complaints from ordinary users about banking services are accumulating at an accelerating rate, and trust is rapidly being lost. In the long run, no country can permanently suppress the application of blockchain financial technology in order to maintain the existing financial management model. Traditional financial institutions will either embrace blockchain or be disrupted.
Therefore, we believe that although the application of blockchain has taken a detour in the past decade, with payment as a breakthrough, the path for large-scale application of blockchain has gradually become clear. The recent frequent incidents in the Web3 payment field are a clear signal. In the near future, payment will promote the large-scale implementation of blockchain applications in the commercial and consumer markets, stimulate the emergence of innovation, and produce significant economic and technological consequences.
Why blockchain payment suddenly made a counterattack
Blockchain payment has taken a curve of opening high and closing low. After 2015, when the central banks of some countries were building new generation payment systems such as CBDC, they once favored blockchain technology. However, after repeated inspections, not only did they not adopt it, but they decided to abandon it. Ordinary users are not even willing to try this new payment technology. After the initial excitement about blockchain, the financial technology community’s enthusiasm quickly waned. After 2021, few mainstream financial professionals are actively involved in the research and development of blockchain payments. Under such circumstances, the rapid counterattack of blockchain payment in the past year is unexpected. Why does this happen? We believe that the main reasons are as follows:
First, the blockchain infrastructure has gradually improved, shortcomings have been made up, and its inherent “technological gene” advantages have been verified.
In terms of its “technical gene”, blockchain payment is a revolutionary new generation technology that fundamentally surpasses the current mainstream payment system. Its biggest advantage is the trinity of transfer, clearing, and settlement, which completely eliminates the delays and frictions caused by multiple ledgers recording accounts and post-reconciliation, greatly improving payment and settlement efficiency.
However, due to the imperfect infrastructure of blockchain in the past, users often had to pay high transaction fees and wait for several minutes to dozens of minutes to complete the payment. This offset the inherent efficiency advantage of blockchain and made ordinary users feel inefficient.
In recent years, with the development of high-performance public chain and second-layer network technology, blockchain infrastructure has made tremendous technological progress, and efficiency and cost advantages have been fully reflected. Some high-performance blockchains capable of executing thousands of transactions per second have been put into practical applications. Early speculations about the inherent advantages of blockchain payments have proven to be borne out due to improvements in technology and infrastructure. In the face of thousands of times of performance and cost advantages, all doubts about the usefulness of blockchain are meaningless.
Second, stablecoins provide a pragmatic answer to the question of “source of value” and become a consensus medium of exchange and value measure.
In the early days of blockchain, a hot topic about it was the source of value of digital currencies such as Bitcoin and Ethereum. Various currency experts, economists, historians and philosophers all came forward to participate in the discussion, completing the theoretical enlightenment of a generation on currency and banking in a short period of time. However, whether people approve or disapprove of Bitcoin’s “digital gold” positioning, it cannot change the reality that its price has skyrocketed and plummeted. Whether an asset that rises and falls sharply has a solid value foundation can be discussed, but it is indisputable that it cannot be used as a medium of transaction and a measure of value.
Stablecoins bypass the philosophical debate on the source of value, solve this problem with a pragmatic attitude, and reconcile the contradictions between the crypto asset community, supervision and the traditional financial industry, becoming a transaction medium and value scale with broad consensus, and becoming the mainstream “currency” in blockchain payments. At present, there are more than 180 stablecoins in circulation, and 26 countries and regions have issued stablecoin regulatory frameworks. The total scale of stablecoins exceeds US$170 billion, supporting US$1.8 trillion in transactions per month, which is equivalent to all stablecoins circulating ten times a month. This is itself a proof of the superiority of blockchain technology.
Third, the inherent low transaction cost advantage of blockchain strengthens the network effect.
The multiple characteristics of blockchain have reduced the transaction costs of blockchain payments in all aspects. Among them, autonomous accounts greatly lower the threshold for joining the network. Self-custody of user assets greatly reduces trust friction. Smart contracts reduce the cost of transaction negotiation, contract formulation and contract execution. Transaction records are transparent and cannot be tampered with, which reduces the cost of evidence collection and arbitration in disputes. Naturally without time and space boundaries, it operates 7x24 without boundaries, reducing friction in transaction time. It can be said that the blockchain has reduced friction in all aspects of the transaction, which makes blockchain, as a payment network, more lubricated than the traditional payment system.
Fourth, geopolitical conflicts force blockchain to accelerate its development.
In recent years, international geopolitical conflicts have intensified, the pattern of globalization has been shattered, barriers to international trade and exchanges have become increasingly clear, and trust boundaries have become increasingly dense. In the original era of globalization, all entities signed international agreements and maintained basic trust with each other. On this basis, once abnormalities were discovered, manpower was used for coordination, investigation, and law enforcement. In the new era, trust among various subjects has been greatly weakened, and abnormal situations occur frequently. Continuing to maintain the manual supervision model not only overwhelms the regulators themselves, but also brings more and more problems to the vast majority of law-abiding companies and individuals. The more unbearable friction becomes, the more application of new technologies becomes unstoppable. Blockchain is currently the only relatively mature new technology that is expected to bring breakthroughs in this field.
Of course, we must also see that due to immaturity of technology and other reasons, blockchain payment still faces many challenges, such as:
The user experience is very different from traditional Internet applications and has a higher entry barrier.
There are still problems such as drastic fluctuations in handling fees and difficulties in key management.
Excessive data transparency makes the blockchain unable to adapt to many business scenarios that require privacy protection.
Smart contracts pose higher security risks in practice.
Requires a full set of supporting infrastructure support such as digital identity, digital certificates, and new compliance frameworks.
However, with the continuous advancement of technology and the popularization of user education, these problems will be gradually solved in the future.
Regulation is a challenge, but also a breakthrough
An issue that must be mentioned is that blockchain payment currently has the “advantage” of low supervision, and this is caused by two reasons. On the one hand, this is because the current global regulatory system for blockchain payments has not yet been established. On the other hand, because of the self-custody of assets, the compliance responsibilities that originally need to be borne by intermediaries are eliminated. Low regulation is actually an important reason for many people to use blockchain payments.
However, blockchain payment technology does not naturally exclude regulation. On the contrary, smart contracts themselves can be excellent regulatory tools. However, the current financial regulatory agencies in most countries around the world have reacted very negatively to this issue. They have basically adopted the approach of covering their ears and deceiving themselves and others. They promulgated strict one-size-fits-all rules even though they knew they were unable to implement them. The result is It blocks normal innovation and application exploration, but leaves the vast majority of illegal transactions unchecked and powerless. It is in this context that the US FIT21 bill is of particular interest. This bill adopts a positive attitude, combining blocking and dredging, focusing on dredging, and incorporating blockchain and digital assets into the new framework for reasonable guidance. If implemented, it may open up a new situation of value Internet innovation.
Although blockchain payments have made significant progress, the key to its future development lies in the regulatory and policy attitudes of various countries. Competition among different countries and economies in the field of blockchain payments is increasingly fierce, and regulation and policy have become key factors that determine victory or defeat. Those countries that can actively promote the development of blockchain payments will occupy a favorable position in the future financial system.
In the international competition landscape, countries have completely different attitudes towards blockchain technology. Some countries adopt open and supportive policies to attract blockchain companies and investors, and promote the legalization and widespread application of related technologies; while other countries have a cautious or repressive attitude towards blockchain payments, causing them to gradually lag behind in technological development and industrial layout. Taking the United States as an example, in the 2024 U.S. election, candidates from both parties have expressed support for blockchain, which marks a positive shift in regulatory policy. Russia, Brazil and other countries are actively exploring blockchain payment systems independent of SWIFT through projects such as BRICS Pay to get rid of the constraints of the traditional financial system.
Policy and regulatory uncertainty are the biggest obstacles to the current development of blockchain payments, but they are also the most potential breakthrough. As technology continues to advance and user education becomes more widespread, many countries and economies will have to reexamine their stance on blockchain payments. Active and enlightened regulatory policies will promote the popularity of blockchain payments around the world, while countries that hold a wait-and-see or repressive attitude towards policies will definitely be at a disadvantage in future financial and economic competition.
Summary
Blockchain payment is going through a critical stage from exploration to application, and its core advantages are gradually recognized by financial institutions and users in various countries. As discussed in this article, blockchain payments are becoming a force that cannot be ignored in the global financial system due to their ability to cross trust boundaries, greatly improved efficiency, reduced costs, and widespread support from younger generations. Although there are still challenges, in the long run, openness and positivity in policies and regulations will be the key to promoting the comprehensive development of blockchain payments, and the potential of this technology will continue to be continuously released, leading the transformation of the future digital economy and the Internet.
[1] https://en.wikipedia.org/wiki/MBridge
[2] https://kruschecompany.com/blockchain-sector-statistics-and-facts/…
[3] https://visaonchainanalytics.com
[6] https://mp.weixin.qq.com/s/e52cqAH-VLeOjqvj0CLLoA…
[7] https://en.wikipedia.org/wiki/Financial_Innovation_and_Technology_for_the_21st_Century_Act
Disclaimer：
- This article is reprinted from [Meng Yan Shao Qing]. Forward the original title “Why blockchain payments are making a comeback”. All copyrights belong to the original author [Meng Yan Shao Qing]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
- Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
- Translations of the article into other languages are done by the Gate Learn team. Unless mentioned, copying, distributing, or plagiarizing the translated articles is prohibited.
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