Written by: Meng Yan, Shao Qing
As we approach the end of 2024, blockchain payments have suddenly accelerated. Many mainstream financial institutions are beginning to increase their support for blockchain payments:
On September 26, BlackRock partnered with Ethena to issue the dollar stablecoin USDb.
On October 3, PayPal partnered with Ernst & Young to complete its first commercial remittance using its self-issued PYUSD.
On October 3, VISA announced the VTAP platform to help institutions issue and operate stablecoins independently.
Also on October 3, SWIFT announced that it would launch experiments on 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 the stablecoin payment startup Bridge for $1.1 billion.
On October 22, at the BRICS summit in Kazan, Russia, the BRICS Pay payment system was announced as a competitor to SWIFT.
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 in 2019 failed due to various obstacles, blockchain payments, once seen as revolutionary, gradually faded from view. Two years ago, due to the collapse of the cryptocurrency market, most mainstream financial institutions avoided 'digital currencies' and 'crypto 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 many real-world obstacles to make progress. So what has happened now to suddenly heat up blockchain payments? Will blockchain payments make a comeback and enter a rapid development track?
The undisclosed success
Between 2014 and 2019, blockchain technology sparked global curiosity and enthusiasm, once being considered a revolutionary technology that could fully upgrade the internet and the 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. Instead, the public has received mostly negative news about blockchain from the media, 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 securities exchange's blockchain transformation project. Within the internet industry, many professionals believe that blockchain technology has long failed to find practical application scenarios, only being used in some peripheral avenues, proving to be useless in the 'real world'. Meanwhile, 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 mind.
However, in stark contrast to public perception, blockchain as a technology has achieved remarkably impressive success, being the most advanced technology for cross-border value exchange and trusted data exchange.
To understand this point, one must first understand 'crossing boundaries'.
The so-called crossing of boundaries here refers not to geographical or administrative boundaries, but to crossing trust boundaries between different financial systems, countries, organizations, and individuals.
The current major contradiction in the digital economy is between the high efficiency of the internet in transmitting information and 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 involving internet intermediary platforms infringing on user data sovereignty and privacy continue to emerge, people are increasingly aware of the importance of data sovereignty and privacy protection, leading to denser trust boundaries in the digital space. If this issue cannot be 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 building trust among different parties, reducing reconciliation friction, improving efficiency, and lowering costs. Traditional payment systems require multiple intermediaries to perform accounting, reconciliation, and settlement, where friction and delays can occur at every step, and errors can complicate and prolong the process. Blockchain technology, through distributed ledgers, allows all parties to share the same set of data, update transaction information in real-time, and avoid cumbersome reconciliation processes. This trust mechanism significantly enhances the efficiency of cross-border payments and reduces costs, especially in complex transactions involving multiple countries and currencies, where the advantages of blockchain are particularly prominent. Blockchain payments not only reduce reliance on intermediaries but also decrease 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 concentrated in cross-border payments. Since 2015, many central banks, large commercial banks, and financial institutions have quietly conducted blockchain cross-border payment experiments, yielding astonishing results. For example, the Monetary Authority of Singapore's mBridge project is a cross-border payment system based on blockchain that began in 2019. By 2023, the experimental results of mBridge indicated that blockchain possesses overwhelming advantages over traditional payment systems like SWIFT, reducing cross-border payment times from days to seconds, while transaction costs approach zero. Another case demonstrating this is an experiment conducted by a major commercial bank in Australia involving cross-border micropayments. They broke down $100,000 into hundreds of small transactions for cross-border remittances, paying $1,240 in total fees using the SWIFT system, while using the blockchain system for the same amount and batches of remittances incurred only 30 cents in total fees. In fact, the public believes the Libra global payment network has failed, but it has achieved significant technological success. Although the project was terminated for many non-technical reasons, the public chain systems Aptos and Sui developed from this project have already launched and exhibit excellent technical performance.
Feedback from users also supports this point. It is estimated that there are currently about 560 million users globally holding digital currencies, among which 82 million directly use blockchain. Many individual users have stated that once they start using blockchain for payments, they never want to return to traditional banks. Over the past two to three years, stablecoin payments in the 'retail' sector via public chains have developed rapidly. According to VISA's statistics, by the third quarter of 2024, the visible amount of stablecoin payments on public chains reached $1.8 trillion per month and is accelerating. Even more astonishingly, the application scenarios of stablecoins are 'breaking the circle', with a substantial amount being used in non-speculative trading scenarios. According to Circle, the issuer of the second-largest dollar stablecoin USDC, since 2023, the usage rate of USDC in speculative trading scenarios has decreased by 90%, with the space being filled by real-world transfer payment scenarios. Particularly in some weak areas of traditional banking services, stablecoin payments are spreading like wildfire as general payment and value storage tools. Facts are prompting more and more people and institutions to let go of their prejudices and rethink the topic of blockchain payments.
Given that blockchain payments have such significant advantages and have made such progress, why is the public unaware?
The foremost reason is the current complex international political environment, which has led certain countries and economies to adopt shortsighted policies to suppress and constrain this revolutionary technology.
The U.S. has set a very bad example in this regard, not only stifling the global payment network Libra in its cradle but also actively intervening in the development of international blockchain technology, with the typical case being the international clearing bank mBridge project. This project, initiated in 2019, was underway before the outbreak of the Russia-Ukraine war. However, once the project succeeded in confirming the advantages of blockchain, the war had already erupted, and the U.S. and the West initiated financial sanctions, removing Russia from the SWIFT system. Therefore, the results of mBridge are tantamount to announcing to the world that SWIFT is a technology that is completely outdated and should be replaced by blockchain. This is clearly not conducive to maintaining financial sanctions against Russia. In addition, due to the deep binding of the dollar to the existing international currency settlement system, the potential impacts of an advanced, rules-based, highly automated international settlement network on the dollar also require research. Based on these considerations, the U.S. directly warned the international clearing bank to be cautious in promoting the results of mBridge. This has been a significant reason why the project’s results have not been widely disseminated. Recently, the international clearing bank announced that it is considering withdrawing from the mBridge project, which also sends a clear signal to the global public that the U.S. 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 impacts of AI on the existing order are not any less than those of blockchain.
Incentives for commercial financial institutions also exist, where there are forces that deliberately ignore and suppress the application of blockchain technology. In many commercial banks, blockchain payment experiments are often led by marginal financial innovation departments rather than core business departments. This is similar to how Tesla faced suppression from Edison when it invented alternating current; innovators are often suppressed by non-technical factors. The root cause lies in the maintenance of 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 eager to spread a negative image of blockchain, consistently questioning, being indifferent to, and shutting out all positive news related to blockchain, resulting in most ordinary users avoiding blockchain payments.
Various factors have led blockchain to become the most criticized and least understood technology since nuclear weapons.
The success of blockchain payments cannot be stopped.
Will the aforementioned factors be able to long-term or even permanently banish 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 tech fashion world, if a new technology has performance and cost advantages over the previous generation of more than ten times, it is considered a revolutionary innovation. In scenarios where blockchain payments excel, they possess efficiency and cost advantages of thousands to tens of thousands of times compared to existing technologies. For such a vast technological advantage, power, money, and public opinion can only temporarily slow its development, but cannot long obstruct it.
Second, as people's understanding of blockchain technology deepens, their recognition of its advantages becomes clearer, and some concerns are alleviated. For instance, financial regulators in various countries have previously expressed general concerns that blockchain payments would lead financial activities to escape regulation. However, following a series of blockchain innovation experiments over the past few years, people have gradually realized that blockchain actually provides stronger financial regulatory capabilities. For example, 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 a thousand times greater compared to current technologies. Additionally, the impact of blockchain payments on currency and economic systems is also 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 regions in Asia and thoughtfully pointed out that the use of the U.S. dollar is not mutually exclusive with mBridge, and whether the dollar can continue to serve as a reserve currency and a currency for international trade settlement mainly depends on the U.S. 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 application of blockchain payments. The current competition and confrontation in international politics and economics are intensifying, and technological competition is viewed as a crucial factor for success or failure. After the outbreak of the Russia-Ukraine war, the speculation that the dollar and 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 long ignore blockchain technology for the sake of maintaining vested interests. On the contrary, driven by competition, once one party launches the application of blockchain payments, the other cannot afford the cost of competing with a technology that is a thousand times behind. From the current situation, the unwritten consensus formed since 2019 among major global economies to collectively suppress blockchain financial applications is gradually loosening.
Fourth, the strong external application of blockchain technology will urge or even force all parties to participate in competition. Currently, it is generally believed that blockchain applications are concentrated in the financial sector, but in fact, coupled with the ongoing innovations in cryptography, blockchain can significantly change how we store, transmit, verify, and use data. In some respects, blockchain is somewhat similar to the internet, where the primary cost is establishing connections. Once connected, vast application scenarios are unlocked. Looking back at the 1990s, connecting to the internet required laying infrastructure like networks and routers, and users needed to install special devices like network cards or modems to connect. This connection cost was the main barrier for users to adopt the internet. However, once users connected to the internet en masse, a multitude of innovative applications emerged. Blockchain is similar; the biggest barrier 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 barrier is broken, numerous innovative applications will emerge, spanning from e-commerce consumption to data management, from organizational collaboration to military applications, fundamentally changing how people use networks. Due to this strong externality, competing parties cannot bear the risk of remaining inactive for long.
Fifth, the support of young people. In the heated 2024 U.S. elections, both party candidates expressed support for blockchain technology, with Trump being particularly proactive. According to Trump's campaign proposals, he plans to actively promote digital assets and blockchain development once in office, especially to expedite the passage of the '21st Century Financial Innovation and Technology Act', known as the FIT21 bill, to establish a new regulatory framework for the development of blockchain and digital assets. Why has digital asset cryptocurrencies become a topic in the elections? Because both parties are vying for the support of young people. Whether it’s young people in Africa unable to open bank accounts or e-commerce operators in Southeast Asia needing rapid settlements of payments, once they cross the threshold and experience the advantages of blockchain payments, they will be enthusiastic supporters. The real trend evident now is that stablecoin payments on the blockchain are increasingly being used outside of speculative trading scenarios, with their growth speed and scale exceeding previous expectations. Many young people, after overcoming their initial unfamiliarity and mastering the basic operations of blockchain payments, are unwilling to return to traditional financial systems. Any efforts to forcibly obstruct this trend will inevitably be futile in the long run. Furthermore, as encrypted finance develops, traditional finance faces increasing regulatory pressures, leading to more troubles and friction for its customers, making it less appealing to young people. This vicious cycle is hard to break. Today, in many countries and regions, the quality of traditional banking services is rapidly declining, and ordinary users' complaints about bank services are accelerating, with trust rapidly evaporating. 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, a clear path for large-scale applications of blockchain has gradually emerged, with payments serving as the breakthrough point. In a short time, payments will drive the large-scale deployment of blockchain applications in business and consumer markets, stimulate innovation, and lead to significant economic and technological consequences.
Why have blockchain payments suddenly made a comeback?
Blockchain payments have followed a trajectory of high expectations followed by low returns. After 2015, when some central banks began building new-generation payment systems like CBDCs, they initially favored blockchain technology but ultimately decided against using it after repeated examinations. Ordinary users often lacked the willingness to try this new payment technology. After an initial excitement in the fintech community about blockchain, enthusiasm quickly waned. Since 2021, mainstream financial professionals have rarely engaged in research and development of blockchain payments. Against this backdrop, 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 is gradually improving, filling its original inherent 'technical gene' advantages.
In terms of its 'technical gene', blockchain payments represent a revolutionary, next-generation technology that fundamentally surpasses current mainstream payment systems. Its greatest advantage is the integration of transfer, clearing, and settlement, completely eliminating the delays and friction caused by separate accounting and reconciliation of multiple ledgers, thereby greatly enhancing payment settlement efficiency.
However, due to the previous inadequacies of blockchain infrastructure, users often incurred high fees and had to wait from a few minutes to several dozen minutes to complete transactions, which offset the inherent efficiency advantages of blockchain, making ordinary users feel inefficient.
In recent years, with the development of high-performance public chains and layer-2 network technologies, blockchain infrastructure has made significant technological advancements, demonstrating its efficiency and cost advantages. Some high-performance blockchains capable of processing thousands of transactions per second have started to be applied in practice. Evidence shows that due to improvements in technology and infrastructure, the early suspicions 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 widely accepted medium of exchange and measure of value.
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 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. It is debatable whether a volatile asset has solid value backing, but it is indisputable that it cannot serve as a medium of exchange and a measure of value.
Stablecoins bypass the philosophical debates about the source of value, addressing this issue with a pragmatic approach, and reconciling the conflicts between the crypto asset community, regulators, and traditional financial industries, becoming a widely accepted medium of exchange and measure of value, thus 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, with a total scale exceeding $170 billion, supporting $1.8 trillion in transactions every month, equivalent to the total circulation of all stablecoins turning over ten times each month, which itself is a testament to the superiority of blockchain technology.
Third, the inherent low transaction cost advantage of blockchain reinforces the network effect.
Multiple characteristics of blockchain comprehensively lower the transaction costs of blockchain payments. Among them, self-sovereign accounts greatly reduce the threshold for joining the network. Users' self-custody of assets significantly lowers trust friction. Smart contracts reduce the costs of negotiating, drafting, and executing contracts. Transaction records are transparent and immutable, lowering the costs of evidence gathering and arbitration in disputes. With no temporal or spatial boundaries, blockchain operates 24/7 without borders, reducing time friction in transactions. It can be said that in every aspect of transactions, blockchain reduces friction, making it a payment network that is unmatched in terms of efficiency compared to traditional payment systems.
Fourth, geopolitical conflicts are accelerating the development of blockchain.
In recent years, international geopolitical conflicts have intensified, the landscape of globalization has been shattered, and barriers to trade and communication between countries have become increasingly distinct, with trust boundaries becoming more pronounced. In the previous era of globalization, various parties signed international agreements and maintained basic trust in one another; when anomalies occurred, human coordination, investigation, and enforcement were employed. In the new era, trust among parties has significantly weakened, anomalies are frequent, and maintaining a manual regulatory model not only burdens regulators themselves but also creates increasingly intolerable friction for the vast majority of compliant businesses and individuals. The application of new technologies has become unstoppable. Currently, blockchain is the only relatively mature new technology that holds promise for breakthroughs in this area.
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 significantly different from traditional internet applications, with a higher entry threshold.
There are still issues such as dramatic fluctuations in fees and difficulties in key management.
Excessive transparency of data makes blockchain unsuitable for many business scenarios that require privacy protection.
The security risks posed by smart contracts in practice are relatively high.
There is a need for a complete set of supporting infrastructure, including digital identity, digital certificates, and new compliance frameworks.
However, with continuous technological advancements and user education, these issues will gradually be resolved in the future.
Regulation is both a challenge and a breakthrough point.
A crucial point to mention is that blockchain payments currently possess a 'low regulation advantage', which is caused by two aspects. On one hand, there is currently no established regulatory framework for blockchain payments globally; on the other hand, the inherent advantages of self-custody of assets dissolve the compliance responsibilities that intermediaries would typically have. Low regulation is indeed 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, most financial regulatory agencies globally have reacted very negatively to this issue, essentially adopting a 'burying one's head in the sand' approach, issuing harsh one-size-fits-all rules that they know they cannot enforce, resulting in the stifling of normal innovation and application exploration while allowing most illegal transactions to go unchecked. It is in this context that the U.S. FIT21 bill has garnered particular attention. This bill adopts a positive stance, combining both control and guidance, primarily focusing on guidance, incorporating blockchain and digital assets into a new framework for reasonable direction, and if implemented, could open a new chapter in value internet innovation.
Although blockchain payments have made significant progress, the key to their future development lies in the attitudes of various countries toward regulation and policy. Competition in the field of blockchain payments between different countries and economies is becoming increasingly intense, and regulation and policy are key factors that determine success or failure. Countries that 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 relevant technologies; while others hold a cautious or suppressive attitude toward blockchain payments, leading them to gradually lag in technological development and industrial layout. For example, in the 2024 U.S. elections, both party candidates expressed support for blockchain, marking a positive shift in regulatory policy. Conversely, countries like Russia and Brazil are actively exploring blockchain payment systems independent of SWIFT through projects like BRICS Pay, seeking 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. With continuous technological advancements and user education, many countries and economies will have to reassess their positions on blockchain payments. Positive and enlightened regulatory policies will promote the global proliferation of blockchain payments, while countries that adopt a wait-and-see or suppressive attitude toward policies may find themselves at a disadvantage in future financial competition.
Summary
Blockchain payments are undergoing a critical phase from exploration to application, with core advantages gradually being recognized by financial institutions and users around the world. As discussed in this article, blockchain payments are becoming an undeniable force within the global financial system, thanks to their ability to cross trust boundaries, significantly enhanced efficiency, reduced costs, and widespread support from the younger generation. Despite ongoing challenges, in the long term, enlightened and proactive policies and regulations will be key to driving the comprehensive development of blockchain payments, and the potential of this technology will continue to be released, leading the transformation of the future digital economy and internet.
