Recently, the blockchain research group of the digital currency Research Institute of the people’s Bank of China wrote an article in China finance that the blockchain is not suitable for high concurrency scenarios such as traditional retail payment because it sacrifices the processing efficiency of the system and some privacy of customers at the cost of synchronous storage and common calculation of a large number of redundant data. However, blockchain has been widely used in areas with higher requirements for information trusted sharing and lower requirements for concurrency, such as transaction settlement, trade finance, property rights transfer, etc.
Among them, the cross-border payment and transaction settlement blockchain payment companies have achieved rapid growth and are favored by the market. According to incomplete statistics, in February 2020 alone, three settlement blockchain payment enterprises obtained US $47 million in financing. Ruibo, a cross-border payment giant, said it would go public within the next 12 months.
It is worth noting that China’s central bank digital currency (DC / EP) is also ready. As of February 4, the Central Bank of China has applied for all patents related to the whole process of digital currency issuance, including generation, circulation and recycling.
Industry insiders believe that the central bank’s digital currency will be widely used in retail and other business scenarios with high concurrency, which may solve the problem of low payment efficiency of the current blockchain. At the same time, the issuance of the central bank’s digital currency will bring disruptive changes to the existing financial market and create more new business opportunities.
Global remittance market exceeds US $600 billion, settlement blockchain payment enterprises are optimistic in the capital market
At present, blockchain is more suitable for low-frequency and high value payment scenarios, and its application in the field of payment mainly focuses on cross-border payment and trade finance, including cross-border payment, foreign exchange settlement, trade settlement, credit card payment, etc.
In fact, cross border payment alone is a big business. According to the World Bank report, low – and middle-income developing countries are expected to grow by 3.5% to $466 billion in 2018, while global remittances are expected to grow by 3.4% to $616 billion. In 2017, nearly 150 billion US dollars were remitted to individuals in other countries.
From the perspective of investment and financing, although the investment environment is getting colder, blockchain payment and settlement enterprises are still recognized by the market. On February 8, paystad, a commercial payment company providing B2B digital currency services, completed a round B financing of US $20 million. Paystad builds an open payment platform based on blockchain, provides payment API to businesses, and supports the payment needs of bitcoin, e-checks and credit card. On February 6, clear, a blockchain clearing company, obtained US $13 million in round a financing, and transparent systems, a Seattle payment clearing company, also completed US $14 million in round a financing.
Ripple, a cross-border payment giant, completed round C financing of up to US $200 million in December 2019, with a valuation of US $10 billion. Brad garlinghouse, chief executive, said the company could go public within the next 12 months. Ripple has raised $293.6 million so far, according to CrunchBase.
Domestic cross-border payment has already begun the layout of blockchain. In February 2017, China Merchants Bank (34.830, 0.20, 0.58%) announced that it had applied blockchain technology to cross-border direct clearing, global account unified view and cross-border fund collection in the field of global cash management. In June 2018, the Hongkong version of Alipay AlipayHK launched a block chain cross border remittance service based on electronic wallet. Its users can transfer funds to Philippines users through block chaining technology. According to Jiang Zhaosheng, nearly half of the blockchain practices of commercial banks in Bank of China (3.590, 0.02, 0.56%) are related to the cross-border business of blockchain.
In fact, in the field of traditional financial cross-border payment and clearing, swift (Global Interbank Financial Telecommunication Association) almost occupies a monopoly position. But swift is widely criticized for its low efficiency, long time and high cost. The cost of cross-border remittance is high, with an average handling fee of 7.68% borne by each remitter. The main cost comes from bank remittance handling fee and swift telegram fee.
Blockchain technology can just solve these pain points. Jiang Zhaosheng, analyst of zero one think tank and researcher of digital asset research institute, told reporters that the opportunities of blockchain in the field of payment are huge, and the relevant applications should focus on cross-border payment and other scenarios, which can improve the efficiency of capital flow, optimize the business process of financial institutions, and alleviate the trust problem.
Its payment system can realize the point-to-point capital transaction, no longer rely on the service of the third party clearing organization, and realize the automatic real-time transaction and capital real-time clearing. Compared with the centralized system, the blockchain improves the stability of the payment system with a distributed architecture. Each participating node can keep accounts and store data. Some nodes’ data are lost or damaged, which has no impact on the operation of the whole system, the integrity of the database and the information update.
Bitcoin’s limited monetary function hinders its development in retail
Bitcoin came out in 2008, and payment companies based on blockchain began to appear in 2012. At the beginning of development, most of them focused on digital currency, especially bitcoin payment business.
The currency circle Unicorn Circle, known as the “currency circle Alipay”, completed its $110 million E round of financing in May 2018, when its valuation was close to $3 billion. Initially, circle was positioned to provide digital currency payment services, and the use scenarios were mainly the use of digital currency and C2C cross-border transfer between B2C businesses and customers. But three years later, circle canceled most of the digital currency payment services and contracted to the vertical scenario of cross-border payment.
Similarly, paystad, which has just obtained round B financing, was initially positioned as a service provider providing B2B and B2C payment solutions to businesses, and began to gradually dilute bitcoin payment business in 2018.
Bitcoin’s currency function is limited, and it didn’t explode as quickly as expected. “At that time, everyone thought that it was possible and potential to become an acceptable payment method, and explored many possibilities to improve the circulation efficiency of bitcoin.” Wang shuobin, founder of Litex, has been in the payment industry for more than ten years. In 2016, he paid attention to bitcoin payment and began to provide blockchain payment solutions.
“We also tried to put forward solutions by combining bitcoin with daily retail, but now it’s more of a complementary solution.” Wang shuobin believes that bitcoin payment will not become the mainstream for daily retail payment. There is no endorsement of national entities or large companies behind it and it is completely centralized. It is difficult for virtual currency controlled by small institutions to become a general retail currency.
Wang shuobin told reporters that the current blockchain payment is still in its early stage, facing three major challenges to restrict its development: first, compliance. The digital currency under the original public chain system is not compliant in China, and the relevant companies can only carry out business overseas. Second, technically, it is very difficult for the public chain system to expand its capacity. The difficulty lies in balancing the relationship among efficiency, security and decentralization. The biggest challenge is to find the use scenarios of blockchain payment and improve the user’s acceptance. The current applications are more in large amount settlement, and many retail scenarios already have good solutions.
On February 21, the digital currency Research Institute of the people’s Bank of China released the article “development and management of blockchain technology”. It is also mentioned in the article that blockchain costs a lot of redundant data synchronous storage and common calculation, sacrificing the system processing efficiency and part of the customer’s privacy. It is not suitable for high concurrency scenarios such as traditional retail payment, and it is not recommended to transform the traditional payment system based on blockchain.
New variable of payment pattern brought by DC / EP
Professionals told reporters that if the narrow sense of blockchain payment is based on public chain systems such as bitcoin or Ethereum, the concurrency is low and the efficiency is difficult to guarantee due to the consensus of decentralization. But if the broad block chain payment, such as the central bank’s DC / EP legal digital currency, is controlled by the central bank, the concurrency efficiency will be very high.
At present, the digital currency of the people’s Bank of China is technology neutral at the central bank level, and the blockchain system is not the only technical option. According to the current design, since the central bank’s digital currency will be mainly used in small retail high-frequency scenarios, the key is to meet the high concurrent demand. According to the information disclosed by central bank officials, the performance of the central bank’s digital currency trading system, which is positioned to replace M0, is at least 300000 transactions per second.
Jiang Zhaosheng told reporters that this kind of performance requirements can rarely be achieved by the current blockchain system, but it does not mean that blockchain technology can not be applied to the central bank’s digital currency system. According to Mu Changchun’s previous speech, the central bank’s digital currency will draw on the core of the blockchain in the design process, but the specific content can only be clarified after the central bank’s digital currency comes out.
“If the epidemic had not disrupted the pace, the central bank’s digital currency should be piloted at the beginning of this year.” Wang shuobin told reporters that he always pays attention to the progress of DC / EP, which is very important for the future strategic direction of the company. At present, employees are being organized to conduct research and communicate with current merchants, foreign trade enterprises and retail enterprises. The specific details of DC / EP have not yet been worked out, so it is difficult to directly carry out the work of productization.
With the emergence of legal digital currency, the payment pattern will change greatly. Wang Shuobin believes that the current pattern is still very uncertain, but possible participants include: first, the early public chain system to pay the company; the two is WeChat payment, Alipay represented the payment giant, once DCEP or Libra and other relatively large numbers of currency appear, they will transfer the original business scenario. Third, start-ups in the field of blockchain payment.
“In addition to the migration scenario, there will be some new payment scenarios, such as the settlement and clearing of foreign trade companies. It’s a new scenario we’re looking for and an opportunity for startups. ” In Wang shuobin’s view, there are so many merchants under the mobile payment system based on banks. Once new payment methods appear, there may be some new companies to provide corresponding services. This is DC / EP bringing new opportunities to start-ups like them.
In fact, in the future, around DC / EP, a relatively complete eco industrial chain will be formed from the aspects of issuance, distribution, payment and operation. There will be a wave of entrepreneurship and infrastructure construction in the fields of DC / EP and blockchain, and payment technology related services and manufacturers will get new development opportunities.
Andersen Securities believes that the issuance of the central bank’s digital currency is bound to bring disruptive changes to the existing financial market and create new business opportunities. It providers of banks in the distribution link; wallet service providers and payment service providers in the circulation link; security encryption and KYC authentication in the management link.
CITIC Securities (25.130, -According to the research report, the central bank’s digital currency is about to emerge, and the investment opportunities in the industrial chain include the transformation of IT systems of the central bank and commercial banks. The central bank’s digital currency will adopt a “central bank commercial bank” two-tier structure, and commercial banks need to transform the core system, establish their bank library, and jointly form a distributed ledger with the central bank to register the ownership information of DC / EP. At the same time, a similar alliance chain structure will be formed between the central bank and commercial banks, which may lead to the need of alliance chain construction. Therefore, manufacturers of digital certificate and encryption are expected to benefit. In the payment phase, in order to meet the demand of dual offline payment of digital currency, new payment terminals need to be deployed in the retail scene of merchants. Therefore, the manufacturers providing payment terminals are expected to benefit. As for DC / EP hardware wallets, banks are currently considering the introduction of hardware wallets, which may take the form of SIM card film, U disk, fingerprint card, etc., and hardware wallets suppliers are expected to benefit.
Editor in charge: CT