Blockchain payments are undergoing a critical phase of transition from exploration to application, with their core advantages gradually recognized by financial institutions and users around the world.

Written by: Meng Yan, Shao Qing

As we approach the end of 2024, blockchain payments have suddenly accelerated. Numerous mainstream financial institutions have begun to increase their support for blockchain payments:

• On September 26, BlackRock partnered with Ethena to issue the US dollar stablecoin USDb.
• On October 3, PayPal collaborated with Ernst & Young to complete its first commercial remittance using its self-issued PYUSD stablecoin.
• On October 3, VISA announced the VTAP platform to help institutions independently issue and operate stablecoins.
• Also on October 3, SWIFT announced it would launch experiments in digital currency and digital asset trading in 2025.
• On October 16, internet payment giant Stripe announced a partnership with Paxos to support stablecoin payments.
• On October 19, Société Générale issued the euro stablecoin 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 the blockchain payment company Skyfire, which integrates AI technology.

Such a high density of events cannot help but attract attention. People still remember that after Meta's attempt to launch Libra was thwarted in 2019, blockchain payments, once seen as having revolutionary potential, gradually faded from view. Two years ago, due to the collapse of the cryptocurrency market, most mainstream financial institutions avoided "digital currencies" and "cryptographic assets," and the public gradually formed the impression that "blockchain has no future." Some believed blockchain was useless, while others thought it was useful but faced too much resistance in the real world to make progress. So what has happened now that has suddenly warmed up blockchain payments? Will blockchain payments make a comeback and enter a rapid development track?

The Unspoken Success

Between 2014 and 2019, blockchain technology sparked global curiosity and enthusiasm, once considered a revolutionary technology capable of upgrading the internet and digital economy. The publication of Don Tapscott's book "Blockchain Revolution" in 2016 represented the peak of this optimism. However, in the past decade of application, blockchain has not achieved the expected success. On the contrary, the news about blockchain that the public received from the media was mostly negative, such as the failure of the highly anticipated Libra project, the failure of the blockchain logistics management system developed by IBM and Maersk, and the failure of the Australian ASX stock exchange's blockchain transformation project. Within the internet industry, many professionals believe that blockchain technology has long failed to find practical application scenarios and can only be used in some fringe areas, rendering it useless in the "real world," and has been debunked. Furthermore, mainstream media has associated blockchain digital currencies with speculation, hype, fraud, money laundering, and the transfer of illegal funds, severely stigmatizing this technology in the public's mind.

In reality, contrary to public perception, blockchain as a technology has achieved remarkable success and is currently the most advanced technology for cross-border value exchange and trusted data exchange.

To understand this, one must first grasp the concept of "cross-border."

The so-called cross-border here does not refer to geographical or administrative boundaries, but rather to the trust boundaries that exist between different financial systems, countries, organizations, and individuals.

A major contradiction in the current digital economy is the high efficiency of the internet in information transmission versus the low efficiency of value exchange between different entities due to a lack of trust. In other words, information can be transmitted at the speed of light, but value cannot cross trust boundaries. Moreover, as incidents of internet intermediary platforms infringing on user data sovereignty and privacy continue to be exposed, people's awareness of data sovereignty and privacy protection has increased, leading to denser trust boundaries in the digital space. If this issue is not resolved, the operational efficiency of the digital economy will continue to decline rather than improve.

The core advantage of blockchain payments lies in helping different stakeholders establish trust and reach consensus, thereby crossing trust boundaries. For example, in cross-border payment scenarios, this means establishing trust between different parties, reducing reconciliation friction, improving efficiency, and lowering costs. Traditional payment systems require multiple intermediary institutions to separately handle bookkeeping, reconciliation, and settlement, with each step potentially causing friction and delays, and any errors making the process even more cumbersome and time-consuming. In contrast, blockchain technology utilizes distributed ledgers, allowing all parties to share the same set of data and update transaction information in real-time, avoiding the cumbersome reconciliation process. This trust mechanism significantly enhances the efficiency of cross-border payments and drastically reduces costs, especially in complex transactions involving multiple countries and currencies, where blockchain's advantages are particularly pronounced. Blockchain payments not only reduce reliance on intermediaries but also minimize friction caused by a lack of mutual trust between different financial systems.

In the current economic landscape, the advantage of blockchain in crossing trust boundaries is particularly evident in cross-border payments. Since 2015, many central banks, large commercial banks, and financial institutions around the world have quietly conducted experiments in blockchain cross-border payments, yielding astonishing results. For instance, the Bank for International Settlements' mBridge project is a blockchain-based cross-border payment system that began in 2019. By 2023, the experimental results of mBridge indicated that blockchain has overwhelming advantages over traditional payment systems like SWIFT, reducing cross-border payment times from several days to just seconds, with transaction costs approaching zero. Another illustrative case is an experiment conducted by a major Australian commercial bank involving cross-border micropayments. They split $100,000 into hundreds of small transactions for cross-border remittance using the SWIFT system, incurring a total fee of $1,240, while using a blockchain system for the same amount and batch of remittances resulted in a total fee of only 30 cents. In fact, the globally perceived failure of the Libra payment network has achieved significant technical success. Although the project was terminated due to various non-technical factors, the public chain systems developed from it, Aptos and Sui, have already launched and exhibit excellent technical performance.

User feedback also supports this. It is estimated that there are currently about 560 million users holding digital currencies globally, with 82 million directly using blockchain. Many individual users have stated that once they start using blockchain for payments, they can never return to traditional banks. In the past two to three years, stablecoin payments in the "retail" sector using public chains have rapidly developed. According to VISA's statistics, by the third quarter of 2024, the visible stablecoin payments on public chains reached $1.8 trillion per month and are accelerating. Even more astonishingly, the application scenarios for stablecoins are "breaking out of their circles," with a large number being used in non-speculative transaction scenarios. According to Circle, the issuer of the second-largest US dollar stablecoin USDC, since 2023, the usage rate of USDC in speculative scenarios has decreased by 90%, with the space being filled by real-world transfer payment scenarios. Particularly in some blind spots and weak links of traditional banking services, stablecoin payments are spreading like wildfire as general payment and value storage tools. The facts are prompting more and more individuals and institutions to set aside their prejudices and rethink the topic of blockchain payments.

Given that blockchain payments have such significant advantages and have made such great progress, why is the public unaware?

The primary reason is the current complex international political environment, which has led certain countries and economies to adopt short-sighted policies of suppression and containment against such a revolutionary technology as blockchain.

The United States has set a particularly bad example in this regard, not only stifling the Libra global payment network in its infancy but also actively intervening in the international development of blockchain technology, with the mBridge project being a typical case. This project was initiated in 2019, before the outbreak of the Russia-Ukraine war. However, when the project achieved success and confirmed the advantages of blockchain, the war had already begun, and the US and the West initiated financial sanctions, excluding Russia from the SWIFT system. Therefore, the results of mBridge effectively announced to the world that SWIFT is a technology that is comprehensively lagging behind and should be replaced by blockchain. This is clearly not conducive to maintaining financial sanctions against Russia. Additionally, due to the deep binding of the US dollar with the existing international monetary settlement system, the potential impact of an advanced, rules-based, highly automated international settlement network on the dollar is also a question that needs to be studied. Based on these considerations, the US directly warned the Bank for International Settlements to be cautious in promoting the results of mBridge. This is a significant reason why the project's results have not been widely disseminated. The Bank for International Settlements recently announced it is considering withdrawing from the mBridge project, which also sends a clear signal to the global public that today's United States is willing to suppress technological innovation to maintain the existing order. This stands in stark contrast to the treatment received by AI. In fact, the potential impact of AI on the existing order is no less than that of blockchain.

This trickles down, and there are also forces within commercial financial institutions that deliberately ignore and suppress the application of blockchain technology. In many commercial banks, experiments in blockchain payments are often led by marginal financial innovation departments rather than core business units. Just as Tesla faced active suppression from Edison when it invented alternating current, innovators are suppressed by non-technical factors. The underlying reason is still the consideration of maintaining vested interests. The classic "principal-agent problem" in economics is vividly reflected here.

Another important reason is the negative attitude of mainstream media. In recent years, mainstream media has been keen to spread a negative image of blockchain, habitually adopting a skeptical, indifferent, and dismissive attitude toward any positive news related to blockchain, leading most ordinary users to avoid blockchain payments.

Various factors have made blockchain the most criticized and least understood technology since nuclear weapons.

The Success of Blockchain Payments Cannot Be Stopped

Can these factors permanently or even long-term block the development of blockchain?

We believe it is impossible. There are five reasons.

First, the competitive advantages of blockchain in cross-border payments, social payments, and other scenarios are too prominent to be concealed. In the realm of technology, if a new technology has performance and cost advantages that are ten times greater than the previous generation, it is considered a revolutionary innovation. Blockchain payments, in the scenarios where they excel, have efficiency and cost advantages that are thousands to tens of thousands of times greater than existing technologies. For such a significant technological advantage, forces such as power, money, and public opinion can only temporarily delay its development, but absolutely cannot block it in the long term.

Second, as people's understanding of blockchain technology deepens, their recognition of its advantages becomes clearer, and some concerns are alleviated. For example, financial regulatory authorities in various countries have generally worried that blockchain payments would lead to financial activities escaping regulation. However, with a series of blockchain innovation experiments over the past few years, it has gradually been recognized that blockchain actually provides stronger financial regulatory capabilities. For instance, in a 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 laws by changing the status of smart contracts, achieving efficiency improvements by a factor of a thousand compared to current technologies. Additionally, the impact of blockchain payments on currency and economic systems is being assessed more clearly. At the Financial Street Forum held on October 23, 2024, former Governor of the People's Bank of China Zhou Xiaochuan analyzed the value of the mBridge project in promoting trade exchanges between various regions in Asia and thoughtfully pointed out that the use of the US dollar is not mutually exclusive with mBridge; whether the dollar can continue to serve as a reserve currency and an international trade settlement currency mainly depends on the United States itself. These new understandings help to lift the constraints on blockchain development.

Third, the complex international political and economic landscape creates favorable conditions for the practical application of blockchain payments. The current international political and economic competition and confrontation are intensifying, with technological competition being viewed by all parties as a crucial factor for victory. 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 has been confirmed. In this new landscape, there is no single power or coordinating mechanism globally that can, for the sake of maintaining vested interests, long-term shelve and abandon blockchain technology. On the contrary, driven by competitive motives, once one party initiates the application of blockchain payments, the other party cannot afford the cost of competing with a technology that is a thousand times behind. From the current situation, the tacit understanding among major global economies to collectively suppress blockchain financial applications, which has formed since 2019, is gradually loosening.

Fourth, the strong extensibility of blockchain technology will urge or even force all parties to join the competition. Currently, it is generally believed that blockchain applications are concentrated in the financial sector, but in fact, with the continuous development of cryptographic innovations, blockchain can significantly change the way we store, transmit, verify, and use data. In some respects, blockchain is somewhat similar to the internet, where the main cost is establishing connections; once connected, a vast array of application scenarios can be unlocked. Looking back to the 1990s, accessing the internet required laying down infrastructure such as networks and routers, and users needed to install special devices like network cards or modems to connect to the network. This access cost was the main barrier for users to apply the internet. However, once users were connected to the internet on a large scale, a plethora of innovative applications emerged. Blockchain is similar; the biggest obstacle to promoting its application is enabling every user to establish their digital identity and connect to the blockchain through digital wallets. This is not easy and involves extensive user education and market promotion. However, once this hurdle is overcome, a multitude of innovative applications will emerge, ranging from e-commerce consumption to data management, from organizational collaboration to military applications, fundamentally changing how people use networks. Due to this strong extensibility, competing parties cannot afford the risk of remaining inactive for an extended period.

Fifth, the support of young people. In the heated 2024 US presidential election, candidates from both parties have expressed support for blockchain technology, with Trump being particularly proactive. According to Trump's campaign platform, he will actively promote the development of digital assets and blockchain after taking office, especially pushing for the rapid passage of the "21st Century Financial Innovation and Technology Act," known as the FIT21 Act, to establish a new regulatory framework for the development of blockchain and digital assets. Why has cryptocurrency and digital assets become a topic in the election? Because both parties are vying for the support of young people. Whether it is young people in Africa who cannot open bank accounts or e-commerce 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 payments, they become enthusiastic supporters. Therefore, the real trend emerging now is that stablecoin payments on the blockchain are increasingly being used outside of speculative transaction scenarios, with their development speed and scale exceeding original expectations. Many young people, once they overcome their initial unfamiliarity and master the basic operations of blockchain payments, are unwilling to return to the traditional financial system. Any attempts to forcibly block this trend will inevitably be futile in the long run. Moreover, it is even more disadvantageous for traditional finance that as crypto finance develops, the regulatory pressure on traditional finance increases, leading to more troubles and friction for its customers, making it less appealing to young people. This vicious cycle is difficult to break. Today, in many countries and regions, the quality of service from traditional banks is rapidly declining, complaints from ordinary users about banking services are accumulating, and trust is quickly eroding. In the long run, no country can permanently suppress the application of blockchain financial technology to maintain the existing financial management model. Traditional financial institutions must either embrace blockchain or face disruption.

Therefore, we believe that although blockchain applications have taken a detour over the past decade, the path for large-scale application of blockchain, with payments as the breakthrough point, is gradually becoming clear. In the near future, payments will drive the large-scale implementation of blockchain applications in commercial and consumer markets, stimulating innovation and producing significant economic and technological consequences.

Why Blockchain Payments Have Suddenly Made a Comeback

Blockchain payments have followed a curve of high expectations followed by a decline. After 2015, when some central banks in various countries were building new generation payment systems like CBDCs, they initially favored blockchain technology but ultimately decided against its adoption after repeated evaluations. Ordinary users even showed little willingness to try this new payment technology. Meanwhile, the enthusiasm in the fintech sector quickly waned after the initial excitement about blockchain. After 2021, mainstream financial professionals rarely actively participated in the research and development of blockchain payments. In this context, the rapid resurgence of blockchain payments over the past year has been unexpected. Why has this happened? We believe there are several main reasons:

First, the blockchain infrastructure has gradually improved, filling in the gaps and validating its inherent "technical gene" advantages.

In terms of its "technical gene," blockchain payments represent a revolutionary new generation of technology that fundamentally surpasses current mainstream payment systems. Its greatest advantage lies in the integration of transfer, clearing, and settlement, completely eliminating the delays and friction caused by separate bookkeeping and post-reconciliation, significantly improving payment settlement efficiency.

However, due to the previous inadequacies in blockchain infrastructure, users often incurred high fees and had to wait several minutes to tens of minutes to complete payments, which negated the inherent efficiency advantages of blockchain and made ordinary users feel that it was inefficient.

In recent years, with the development of high-performance public chains and layer-two network technologies, blockchain infrastructure has made significant technological advancements, fully demonstrating its efficiency and cost advantages. Some high-performance blockchains capable of executing thousands of transactions per second have been put into practical use. The facts show that due to improvements in technology and infrastructure, early speculations about the inherent advantages of blockchain payments have been confirmed. In the face of thousands of times the performance and cost advantages, all doubts about whether blockchain is useful have become meaningless.

Second, stablecoins provide a pragmatic answer to the "source of value" issue, becoming a medium of exchange and a measure of value with consensus.

In the early stages of blockchain development, a hot topic was the source of value for digital currencies like Bitcoin and Ethereum. Various currency experts, economists, historians, and philosophers participated in discussions, completing a generation's worth of monetary and banking theory enlightenment in a short time. However, regardless of whether people recognize Bitcoin as "digital gold," it does not change the reality of its price volatility. An asset that experiences extreme price fluctuations raises questions about its solid value foundation, but it certainly cannot serve as a medium of exchange or a measure of value, which is indisputable.

Stablecoins bypass the philosophical debate over the source of value, addressing this issue with a pragmatic attitude and reconciling the contradictions between the crypto asset community, regulators, and the traditional financial industry. They have become a widely accepted medium of exchange and measure of value, becoming the mainstream "currency" in blockchain payments. Currently, there are over 180 stablecoins with a certain circulation volume, and 26 countries and regions have issued regulatory frameworks for stablecoins. The total scale of stablecoins exceeds $170 billion, supporting $1.8 trillion in transactions each month, which means that all stablecoins circulate ten times a month. This itself is a testament to the superiority of blockchain technology.

Third, the inherent low transaction cost advantage of blockchain strengthens the network effect.

Several characteristics of blockchain comprehensively reduce the transaction costs of blockchain payments. Among them, self-sovereign accounts significantly lower the barriers to joining the network. User assets are self-custodied, greatly reducing trust friction. Smart contracts lower the costs of negotiating, drafting, and executing contracts. Transparent and immutable transaction records reduce the costs of evidence collection and arbitration in disputes. The natural absence of temporal and spatial boundaries, operating 24/7 without borders, reduces friction in transaction time. It can be said that at every stage of the transaction, blockchain reduces friction, making it a payment network that is far more efficient than traditional payment systems.

Fourth, geopolitical conflicts are accelerating the development of blockchain.

In recent years, international geopolitical conflicts have intensified, shattering the globalization framework, and barriers to trade and communication between countries have become increasingly clear, with trust boundaries becoming denser. In the original era of globalization, various entities signed international agreements and maintained basic trust in each other. On this basis, once anomalies were detected, human resources were mobilized for coordination, investigation, and enforcement. In the new era, trust between entities has significantly weakened, and anomalies are frequent. Continuing to maintain a manual regulatory model not only overwhelms regulators but also creates increasingly intolerable friction for the vast majority of compliant enterprises and individuals, making the application of new technologies unstoppable. Blockchain is currently the only relatively mature new technology that holds promise for breakthroughs in this field.

Of course, we must also recognize that due to technological immaturity and other reasons, blockchain payments still face many challenges, such as:

• User experience is vastly different from traditional internet applications, with a high entry barrier.
• There are still issues with severe fluctuations in transaction fees and difficulties in key management.
• Excessive transparency of data makes blockchain unsuitable for many business scenarios that require privacy protection.
• Smart contracts pose high security risks in practice.
• A full set of supporting infrastructure, including digital identities, digital certificates, and new compliance frameworks, is needed.

However, with continuous technological advancements and the popularization of user education, these issues will gradually be resolved in the future.

Regulation is a Challenge, but Also a Breakthrough Point

One issue that must be mentioned is that blockchain payments currently have the "advantage" of low regulation, which is caused by two factors. On one hand, a global regulatory framework for blockchain payments has yet to be established. On the other hand, the inherent advantages of self-custody of assets eliminate the compliance responsibilities that would typically fall on intermediary institutions. Low regulation is, in fact, an important reason why many people use blockchain payments. However, blockchain payment technology is not inherently opposed to regulation. On the contrary, smart contracts can serve as excellent regulatory tools. Yet, the response of financial regulatory agencies in most countries around the world to this issue has been very negative, essentially adopting a head-in-the-sand approach, issuing harsh one-size-fits-all rules while knowing they lack the ability to enforce them. The result is that normal innovation and application exploration are blocked, while the vast majority of illegal transactions are left unchecked and unaddressed. It is in this context that the FIT21 Act in the United States has garnered particular attention. This legislation takes a proactive stance, combining both regulation and facilitation, primarily focusing on guidance, and aims to incorporate blockchain and digital assets into a new framework for reasonable guidance. If implemented, it could open a new chapter in the innovation of the value internet.

Despite the significant progress made in blockchain payments, the future development hinges on the regulatory and policy attitudes of various countries. Competition in the field of blockchain payments among different countries and economies is becoming increasingly fierce, with regulation and policy being key factors that determine success or failure. Countries that can actively promote the development of blockchain payments will occupy advantageous positions in the future financial system.

In the context of international competition, countries have vastly different attitudes toward blockchain technology. Some countries adopt open and supportive policies to attract blockchain companies and investors, promoting the legalization and widespread application of related technologies; while others take a cautious or suppressive stance toward blockchain payments, leading to gradual lagging in technological development and industrial layout. For example, in the 2024 US presidential election, candidates from both parties expressed support for blockchain, marking a positive shift in regulatory policy. In contrast, countries like Russia and Brazil are actively exploring blockchain payment systems independent of SWIFT through projects like BRICS Pay, aiming to break free from the constraints of the traditional financial system.

The uncertainty of policies and regulations is currently the biggest obstacle to the development of blockchain payments, but it is also the most promising breakthrough point. As technology continues to advance and user education becomes more widespread, many countries and economies will have to reassess their positions on blockchain payments. Positive and open regulatory policies will promote the global adoption of blockchain payments, while countries that adopt a wait-and-see or suppressive attitude may find themselves at a disadvantage in future financial competition.

Summary

Blockchain payments are undergoing a critical phase of transition from exploration to application, with their core advantages gradually being recognized by financial institutions and users in various countries. As discussed in this article, blockchain payments, with their ability to cross trust boundaries, significantly enhanced efficiency, reduced costs, and widespread support from the younger generation, are becoming an undeniable force in the global financial system. Although challenges remain, in the long run, enlightened and proactive policies and regulations will be key to promoting the comprehensive development of blockchain payments, and the potential of this technology will continue to be unleashed, 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/

[4] https://www.reuters.com/business/finance/bis-leave-cross-border-payments-platform-project-mbridge-2024-10-31/

[5] https://fintechnews.sg/80309/singapore-fintech-festival-2023/project-desft-to-empower-msmes-in-global-trade-with-blockchain-based-credentials/

[6] https://mp.weixin.qq.com/s/e52cqAH-VLeOjqvj0CLLoA

[7] https://en.wikipedia.org/wiki/FinancialInnovationandTechnologyforthe21stCenturyAct

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