Article reprint source: Harsh Whistle
This is Whistle's 18th article about PayTech.
Author | Beichen
There is an increasing discussion about PayTech, with crypto giants like Solana, Binance, and Coinbase focusing on Web3 payments, while traditional finance players like Visa, Sequoia Capital, and Temasek are also frequently investing in crypto payments, creating a sense of déjà vu reminiscent of the DePIN phenomenon that occurred in early 2023—both new and old world influential capital are laying out their strategies, and narratives focus on attracting resources from the real world. In third-world countries like Southeast Asia and South America, USDT has even become a better choice than local fiat currencies.
Various different levels and channels of information point in the same direction: that Web3 payments (PayFi / crypto payments) are gaining momentum. After all, if we compare the global payment market to a dream wedding cake, even a small crumb falling can create a hundred-billion-dollar giant, and this gold rush has only just begun.
However, since the concept of Web3 payments encompasses too many unrelated matters, it is necessary for us to first clearly define whether it is FinTech (financial technology) evolving from traditional financial systems centered around stablecoins like USDT or payment systems based on distributed ledger technology (DLT) evolved from Bitcoin.
Web3 payments realized through financial technology merely added stablecoins like USDT on top of the originally provided fiat currency, still adopting the traditional layered clearing and settlement system. The only value of such products lies in stablecoins like USDT acting as shadow dollars; otherwise, they are no different from supporting Q coins or Happy Beans.
Web3 payments based on distributed ledger technology have made transfers very convenient, but high-frequency payments have yet to be realized. These Web3 payments are actually the result of hundreds of years of economic thought and have been validated in the past decade of crypto experimentation. Moving forward in this direction, you will find a grand journey setting sail at dawn!
1. Web3 payments under the traditional financial technology system.
Most so-called Web3 payment products actually refer to stablecoins like USDT, and on the product level, they remain no different from other Web2 payments; they are simply applications developed based on a link in the traditional payment system's API, only supporting currencies like USDT. Moreover, since they are additionally grafted onto alternative currencies, the channel costs are actually higher than fiat currencies.
Let's first step out of the convoluted jargon of technology and finance to clarify the essence of traditional financial technology payment systems, and it becomes much clearer how Web3 payments are perceived.
1.1. The evolution of traditional payment systems and PayTech.
Let's take a daily payment scenario as an example to analyze the traditional payment processing flow. When we check out at a convenience store, we scan our phones and confirm payment; however, this action that takes less than a second involves six or seven parties going through a dozen procedures to complete.
First, customers will choose a payment method (such as credit card, debit card, or digital wallets like Alipay), and after confirmation, the payment gateway will encrypt the transaction information and pass it on to the payment processor. After checking for abnormalities, it will be released and passed to the card organization (such as Visa or Mastercard), which will then relay it to the issuing bank of the card, verifying whether the funds are sufficient. Funds will be deducted from the customer's account (note that this does not involve direct transfers, as the funds are held in escrow first), and then the information will return along the original route, passing through the card organization, payment processor, and payment gateway to reach the merchant, who will display a successful payment. However, the actual funds will not arrive for at least one working day, and the clearing and settlement process remains very complex, which will not be elaborated further.
The modern financial system's complex processing procedures were gradually established during the era of postal carriages. FinTech companies have not changed this system; rather, they have cut in from a certain link in the process, responsible for accelerating information processing, which is the entire value of FinTech. After all, with the accumulation of countless transactions, each link represents a massive amount of wealth.
Although banks began to digitize in the 1970s, the FinTech approach has always been to move operations online for faster processing. The internal structure and processes of banks have not changed; at best, they have pushed forward centralized construction for efficiency, in order to compete with third-party payment companies.
As a cross-bank clearing network, the core business of card organizations is to resolve the issuance, settlement, and reconciliation of cross-bank transactions, which began digitalization in the 1970s, but the business logic remains unchanged from the paper billing era; FinTech merely accelerates processing speed.
However, card organizations represented by Visa have introduced payment terminals—POS machines on this basis, quickly capturing the mainstream payment market in retail, and thus the entire payment ecosystem has developed around these payment terminals. This has led to the emergence of hardware manufacturers represented by VeriFone and differentiated roles of payment service providers (PSPs), abstracting the tasks of PSPs into payment processors and payment gateways.
If card organizations allow merchants to receive transfers from more banks by forming a bank network, then PSPs (payment service providers) further enable merchants to receive transfers from more card organizations and other payment channels (such as the later PayPal). As for payment processors and payment gateways, they are responsible for transmitting and checking information at different stages.
The FinTech involved in the above processes is all about accelerating information processing efficiency, yet the entire process remains complex and lengthy, and of course, the costs are also high. For instance, the seemingly unremarkable payment processor market is projected to exceed $190 billion by 2030.
The truly revolutionary FinTech is PayPal from 1998, where users register accounts/digital wallets with email, and after topping up, can transfer funds without loss within the platform, only incurring fees when withdrawing to banks. Although PayPal's handling is no different from that of Happy Beans in gaming companies, this straightforward and rough method forcefully opened a gap in the traditional financial system, compelling traditional finance to gradually step into the era of internet payments, the cost of which has been that FinTech companies represented by PayPal constantly face lawsuits and crackdowns.
Despite the rapid commercial growth in the payment field after PayPal, such as the rising star Alipay gradually building a financial service platform that can completely replace banks, even establishing a credit system that surpasses the banking system, the progress in FinTech has been limited to minor innovations like QR codes, with no revolutionary mechanisms.
1.2. Web3 payments based on financial technology.
Now, whether it is cryptocurrency giants or traditional payment companies, the Web3 payment projects they launch are all built on the foundation of traditional payment systems, but they can still be more specifically differentiated.
1.2.1. Traditional payment companies: treating USDT as Happy Beans.
Traditional payment companies actively entering Web3, while also considering acquiring new users, are largely engaging in offensive defense, fearing they will miss the trend of cryptocurrencies. Just like candidates in the US elections competing to express support for cryptocurrencies, they are investing only a minuscule amount of effort to court resources in non-core strategic territories.
In fact, traditional payment companies did not change the traditional financial system in the past, and entering Web3 will not change it either; they simply leverage their existing market share advantages, adding the asset class of cryptocurrencies among the many services they provide, with technical difficulty equivalent to adding Happy Beans.
From banks (like ZA Bank) to card organizations (like Visa) to payment service providers (like PayPal), they claim to embrace crypto, and they have indeed conducted some in-depth research. However, what they say is not important; what matters is what they are actually doing. All their businesses can be summarized as enabling consumers to use bank cards to purchase cryptocurrencies, and conduct transfers and payments, serving as a "conversion channel between fiat and cryptocurrencies" to earn exchange fees, which is entirely an OTC market. As for technologies like "seamlessly enabling end consumers", that is no more remarkable, as Happy Beans do the same.
The traditional payment company that can truly advance Web3 payments is PayPal; they have issued a dollar stablecoin PYUSD (PayPal USD) on Ethereum and Solana. PayPal claims it aims to "achieve instant settlement using distributed ledger technology (DLT), programmability, smart contracts, and tokenization, and to be compatible with the most widely used exchanges, wallets, and dApps..." Because this not only allows them to earn exchange fees between fiat and PYUSD, but also extends the time funds are held, similar to Binance's original intention in launching BUSD.
PayPal's long-term goal is to potentially replace bank cards as the primary payment channel. Of course, from the current viewpoint, it has neither the basic support of e-commerce platforms nor a foothold in offline merchants, and major platforms are also launching their own payment tools (like Apple Pay), so the chances of attempting a comeback with PYUSD seem slim.
Compared to PayPal, which lacks payment scenarios, the payment platform Square, founded in 2009, has established a vast merchant payment network offline, and promoted its own payment tool CashApp through rate discounts, seemingly trending toward replacing bank cards as the primary payment channel. Notably, Square's founder Jack Dorsey is also a co-founder and former CTO of Twitter.
Square's formal entry into Web3 was through the development of Bitcoin mining machines, but a former employee launched the Web3 payment company Bridge in 2023, securing $58 million in investments from firms like Sequoia Capital, Ribbit, and Index, and in October, it was sold to payment processor Stripe for $1.1 billion. What Bridge does is let customers deposit US dollars and euros, create stablecoins, and then use those stablecoins for transfers, treating them as Happy Beans, which makes everything clearer. Of course, I am not criticizing Bridge; in fact, Bridge has quietly realized the grand narrative that Ripple promised years ago.
Similar products also include Huiba, which is said to be a team from Chengdu, but the reason it has made a name for itself in Southeast Asia is mainly due to the relatively large policy space there, with tools for collecting payments from the black and grey markets being an undeniable strong demand.
More foundational products than payment tools are currencies themselves. Now, in addition to USDT and USDC, many stablecoins for specific scenarios have emerged, such as OUSG and USDY launched with the support of BlackRock, used for investing in short-term US Treasury bonds and bank demand deposits.
In summary, the Web3 payments of traditional payment companies are akin to the technical difficulty of Happy Beans, with the threshold being whether they can find their own payment scenarios.
1.2.2. Cryptocurrency giants: eager to issue co-branded bank cards.
If traditional finance earns OTC fees by supporting Happy Beans, then cryptocurrency giants conversely earn OTC fees by supporting bank cards; in short, they are both working to bridge the gap between bank cards and Happy Beans.
The reason exchanges like Coinbase and Binance choose to collaborate with traditional payment giants like Visa and Mastercard to issue co-branded cryptocurrency cards is not only to leverage traditional financial infrastructure to attract more crypto assets but also for a more covert reason: to build their brand. After all, as long as a card is issued, they can claim to support "exchanging and spending cryptocurrencies at over 60 million online and offline merchants globally"; in reality, they only need to collaborate with a member bank of the Visa international organization, or even outsource directly to a third-party card issuer.
Such cases are numerous, somewhat reminiscent of around 2015 when mobile payments just emerged, many mobile payment startups sprang up, and the technology and licenses were often just shells, but this did not hinder capital markets from favoring this new trend.
The operational costs of co-branded cards from cryptocurrency giants are actually quite high; for example, the OneKey Card launched by hardware wallet OneKey was taken offline after a little over a year of operation. According to the announcement, "There are many challenges here, and it is very difficult to balance factors such as low-cost operation with a small team, low transaction fees, stable card operation, resistance to black and grey market activities, and compliance."
Later, the concept of PayFi emerged, built around sending/receiving settlements, attempting to redefine payments, claiming to "liberate users from the shackles of traditional banking systems, allowing them to send cryptocurrencies globally at low fees, with the option to easily withdraw crypto assets for personal custody." However, from the current solutions, they are merely seizing the OTC merchant market within the traditional payment system framework, and their compliance guarantees that they will ultimately be no different from traditional banking systems and Happy Beans.
The Web3 payment solutions capable of bringing about mechanism revolutions must be those realized based on distributed ledger technology.
2. Blockchain payments: blockchain payments inside and outside regulation are two different species.
Whether it is central bank CBDC, private institutions, or public chains, discussions about Web3 payments cannot avoid distributed ledger technology (DLT). Even if many treat USDT as a Happy Bean, at least the Happy Beans here are issued based on DLT.
DLT is essentially a database maintained by multiple nodes, each sharing and synchronizing the same copy. Blockchain is a type of DLT, but DLT is not necessarily a blockchain. The impact of blockchain and cryptocurrencies, triggered by the birth of Bitcoin, has increasingly been viewed as a new infrastructure to replace traditional centralized entities for transferring funds, though most remain at the experimental stage as alternative solutions.
The greatest advantage of DLT is that it is a peer-to-peer (P2P) network, so the parties involved no longer need complex intermediaries; financial transactions can be verified directly through a public ledger, achieving clearing and settlement, and DLT operates 24/7. Moreover, payments based on DLT have another advantage: currency has programmability—not only can different currency rules be defined through smart contracts, but more complex functions can also be realized when interacting with other smart contracts.
The above are common advantages of payments based on DLT, but the problem lies in the significant differences between DLTs, even reproductive isolation, such as public chains versus alliance chains. Furthermore, even if they are both public chains, differences in consensus algorithm types (such as PoW versus PoS) can lead to significant variations in confirmation speed, cost structure, and so forth, not to mention payment applications built on different types of DLT.
The industry seems to overlook these differences, focusing only on the speed of TPS and whether it is compliant. However, the market is different from academia, which relies on peer reviews (a lot of published papers may become authoritative). The development of DLT ultimately needs to be verified by the market.
2.1. Alliance chains and CBDCs as products of cohabitation.
Alliance chains are largely a product of cohabitation with centralized systems—based on DLT technology and strictly controlling access permissions. This seemingly decentralized centralized solution can meet regulatory compliance, but it is essentially still a closed system. This means it only plays a role in reducing costs and increasing efficiency in a certain link of the traditional financial system without changing the system itself.
In the most mainstream narrative, central bank digital currency (CBDC) seems to be the endpoint of Web3 payments. Although CBDC itself is a pseudo proposition, not only from a technical perspective but even from a monetary perspective. Some CBDC plans are even worse than alliance chains because they are essentially just centralized databases, only borrowing some DLT technical features, such as multi-node and consensus mechanisms. However, more absurdly, some have pieced together a versioned relational database using centralized database technology, with no blocks and no chains, yet boast it as blockchain innovation, like Sui.
Thus, payment applications based on alliance chains and CBDCs are merely partial tool iterations targeting internal clearing and settlement systems, rather than involving a paradigm revolution of the entire financial system. Moreover, these tool iterations would theoretically perform even better using centralized databases.
This phenomenon of using new technologies to replicate old businesses is merely a special product of a transitional stage. Hong Kong has accumulated numerous cases in constructing financial products based on DLT, but thus far, there has been no qualitative leap in business outcomes. Therefore, let us focus on those Web3 payments that are truly built on public chains.
2.2. Public chains imitating alliance chains.
True Web3 payments should be built on public chains, which is also the original vision of Bitcoin and blockchain. Over the years, this idea has continued to expand. In July of this year, Lily Liu, the chairwoman of the Solana Foundation, officially proposed the concept of PayFi.
She defines PayFi as "a new financial vernacular built around the time value of money," which is a financial innovation above the settlement layer. DeFi addresses transaction problems, while PayFi involves a broader range of economic activities—sending and receiving, such as supply chain finance, payroll loans, credit cards, corporate credit, interbank repos, and other scenarios, thus the market is larger.
Lily Liu believes that the success of PayFi must meet three conditions: fast and low cost, widely used currency, and developers; the final conclusion is that only Solana can perfectly meet these. The previous discussions are not without merit, but this conclusion will surely attract opposition from many competitors, such as Ripple.
Ripple officially engaged in PayFi in 2012 (before the term even existed), positioning itself as a blockchain that enables transfers between global financial institutions using XRP, once being hoped to break SWIFT's monopoly, and in 2019 was selected as one of the 50 most innovative fintech companies by Forbes.
Ripple's Layer1 is the XRP Ledger, which is a blockchain based on federated learning, strictly speaking, it is an alliance chain, although it claims to be a public chain (one can only say it is open-source). The initial business was to mimic Bitcoin, only faster—allowing everyone to directly use its native asset XRP for transfers.
The Ripple team holds a large amount of XRP and continues to sell it for profit, often obscuring the relationship between XRP and Ripple's equity through repurchase news and collaboration with market makers to boost trading volume in the secondary market. They intentionally blurred the line between XRP and Ripple's stock when selling XRP, resulting in SEC scrutiny and a four-year dispute, which should settle soon but does not change the fundamental fact that XRP is not very useful. Ripple later realized that no one would use XRP, this volatile air currency, for payments (even Bitcoin is unsuitable for retail payments due to its volatility), so it attempted to launch stablecoins like RLUSD, build CBDCs for various countries, and provide asset tokenization and custody services.
If you judge solely based on Ripple's promotional materials, you might think Ripple, with its ability to complete payments in seconds, has covered over 80 payment markets globally, processing transaction volumes exceeding $50 billion. However, Ripple's xCurrent for banks merely records the information of cross-bank transfers on Ripple's blockchain; its core automatic reconciliation engine technology is essentially no different from traditional clearing institutions. Ripple's acquisition of the digital asset custody technology provider Metaco in 2023 highlights that the value of this business primarily lies in licensing and channels. As for using XRP, a volatile air currency, for consumption payments, that is even more of a pseudo-proposition.
In short, Ripple has played the role of a top marketer in the PayFi market. As mentioned earlier, any crypto company can claim that its product "allows users to exchange and spend cryptocurrencies at over 60 million online and offline merchants globally" as long as it collaborates with a member bank of the Visa international organization.
In summary, nearly all public chains emphasize the speed, cost-effectiveness, and compliance of PayFi when discussing it, but PayFi products based on public chains (such as Huma Finance) are still merely using blockchain as an accounting tool within the traditional payment system. Apart from lacking KYC, how is this different from alliance chains?
2.3. The Lightning Network of Bitcoin and its limitations.
Therefore, we still need to look at solutions based on native crypto on public chains, but they are often limited by the block size and confirmation time of public chains, making them suitable only for remittance transfers and not for high-frequency small payments in daily life. Bitcoin's Lightning Network is a good solution.
In simple terms, a payment channel (channel) is established off-chain, which acts as a multi-signature wallet created jointly by accounts A and B. They both top up this wallet, allowing for unlimited transfers (each transfer essentially updates the wallet's balance allocation state, forming a new UTXO, or unspent transaction output), and only upon the last transfer, which is the closing of the channel, will it be submitted to the Bitcoin network for verification. Therefore, the Lightning Network can achieve high-frequency payments without changing the underlying mechanism of Bitcoin.
At this point, there may be a question: the balance changes within the payment channel are not recorded on-chain, so how to ensure security? The security of the traditional financial system depends on the credit guarantee of institutions, but the Lightning Network ensures the security of payment channels through cryptographic techniques such as LN-Penalty and HTLC (Hash Time-Locked Contracts), which will not be elaborated further.
It is important to note that the secure channel discussed earlier is one-to-one, but in actual transfers, it is impossible to establish a separate multi-signature wallet with everyone, leading to a one-to-many solution, which is multi-hop routing technology. In simple terms, if there is a payment channel between A and B, and another between B and C, then A can transfer directly to B, and B can transfer to C, with account B acting as a relay node, thus A and B do not need to establish a separate payment channel.
This one-to-many solution requires relay users to be online regularly and have sufficient funds; otherwise, transactions may fail. The Lightning Network employs multi-path routing, node redundancy, and other technologies to overcome these challenges. However, in practical use, this design is overly idealized—assuming users are willing to lock in large amounts of funds in advance and are willing to tolerate various technical limitations, which contradicts the capital efficiency problems that PayFi originally aimed to address.
The Lightning Network scheme later expanded from Bitcoin to other public chains. For example, the Fiber Network, built on Nervos CKB, has Turing-complete smart contract capabilities, allowing for more flexible asset management, yet it still hasn't escaped the dilemma posed by payment channel design.
This raises a very profound question: finance is a complex system. Mere technological innovations may hardly reshape the entire payment system. So what kind of design can bring about a systemic paradigm revolution?
3. The end of currency is no currency.
Finance has always existed as a complex system, and mere technological advances are unlikely to bring about substantial change, so we need to reassess this system.
Finance is a tool system developed to serve real transactions, with currency playing the role of a unit of account for value, leading to extremely complex trading systems, clearing systems, and credit systems. Because we cannot avoid currency, to be precise, we cannot avoid fiat currency, and more precisely, we cannot avoid the US dollar, the highest pursuit in the current Web3 payment track and even the entire crypto market is to be included in the economic system represented by shadow dollars like USDT.
"A man's great fortune lies in the fact that, whether in adulthood or childhood, he must embark on a very arduous path, yet this is the most reliable path; a woman's misfortune is being surrounded by almost irresistible temptations; she is not required to strive upwards but is merely encouraged to slide downwards into bliss. By the time she realizes she has been deceived by an illusion, it is already too late; her strength has been exhausted in the failed adventure."
This quote comes from Beauvoir's 1949 work (The Second Sex), and I believe the 'woman' in it can be entirely replaced by 'crypto', at least the Web3 payment track is rushing down this road to paradise in an almost oblivious manner. What I want to point out is that it is entirely possible to follow another extremely arduous path, a path that has been deduced from hundreds of years of economic thought and has already received preliminary validation in the past decade of crypto experimentation!
3.1. The logic of currency evolution.
If we trace the history of the development of currency from shells to digital currency, we arrive at an interesting conclusion—that the intermediary role of currency may disappear.
Before currency was born, barter was the norm; however, this method is inefficient, requiring precise matching of both parties' needs and making it difficult to provide fair exchange rates, in addition to the challenges of equally dividing goods.
Therefore, it is only natural to adopt some universally needed, easily stored goods as general equivalents, entering the commodity currency stage. Examples include animal skins, livestock (by the way, many languages link the word 'money' to livestock), grains, textiles, salt, and decorative items like shells.
Later, with the expansion of trade scale, demands for portability, durability, and divisibility increased, leading to the concentration of currency in metals, entering the metal currency stage.
However, with the development of trade scale, even precious metal currencies become inconvenient for merchants to store and carry in large amounts. They choose to store precious metals with jewelers who have safes and guards, and then directly trade using storage receipts similar to warehouse receipts in the market. These receipts gradually gain legal recognition as a quasi-currency.
Since generally no one frequently retrieves their stored precious metals, jewelers often over-issue receipts, thus the value of these receipts is based on the jeweler's credit. This later evolved from jewelers to more specialized banks (most bankers in London in the 18th century were still members of the goldsmith guild), thus entering the paper currency stage directly based on institutional credit, establishing relatively standard currency issuance and redemption rules.
Speaking of which, the Jiaozi, as the earliest paper currency, was issued in a context similar to the Southern Song Dynasty, and its subsequent developmental path is also quite similar. Private commercial institutions first issued and freely competed, followed by government monopolization, centralizing issuance rights to the central bank, and forcing the circulation of printed fiat currency (which is extremely problematic!).
Upon entering the stage of national credit currency, the right to issue currency has become part of national sovereignty; the currency itself has not undergone significant changes (at most, it was liberated further from the constraints of the gold standard after the collapse of the Bretton Woods system), and subsequent developments are about technology.
As trade scales expanded, paper currency (essentially notes) could no longer meet demand. However, if both parties open accounts at the same bank, they actually do not need to use paper currency; transactions can be completed through bank transfers, which are merely pure ledger records, requiring only complex clearing behind the scenes. This clearing can naturally also serve inter-bank transfers, gradually forming a bank network and banking credit system, including familiar credit cards and electronic payments that also exist within this system. This is why today's financial system is so bloated; it is a product of historical evolution, with a strong path dependency.
Looking back, we can find that currency exists to serve trade, efficiently matching supply and demand, from commodity currency to credit currency, and even national credit currency is no exception.
However, national credit currency relies on central bank regulation, and regardless of whether the central bank's regulation is correct, each country's central bank's interests are inconsistent. Therefore, these policies ultimately disrupt the original price structure, directing resources toward the wrong paths, with errors accumulating until they are ultimately resolved. Hence, Hayek advocates for the de-nationalization of currency, calling for a movement similar to the 19th-century free trade movement for free currency, to form a new banking system.
Since the exchange mechanism (especially the clearing system) has evolved, currency has transitioned from being a physical medium of exchange to an abstract unit of account. Can we take it a step further to directly complete the exchange of goods and services? After all, the emergence of currency was merely to overcome the limitations of barter. This is not a regression to primitive society; barter was replaced by currency because the market at that time was too small and lacked sufficient coincidences to match demand.
As the market scale expands and the exchange mechanism evolves, these issues can indeed be overcome. In fact, in the 1990s in Argentina, some communities attempted to use internal credit vouchers as alternative currencies to help marginalized groups participate in economic activities through barter, achieving phased success (with a peak of 6 million users), only to later falter due to rampant issuance, similar to the junk bonds issued by local governments today. However, the crypto world technically eliminates the possibility of such failures.
However, it should be noted that the author does not hold an extreme view that currency should be completely eliminated; rather, it is believed that in the future, currency will no longer need to act as an intermediary for transactions, but a common value reference standard will still be necessary. After all, the ratios between vast amounts of goods are nearly infinite. The ideal unit of measure should not be fiat currency with unrestricted inflation, but should also not be assets like gold or Bitcoin with limited supply, as this would mean that the costs for later holders must be higher than those for early holders, inevitably leading to hoarding tendencies and ultimately causing unnecessary deflation.
3.2. The trials of crypto-punks represented by Bitcoin.
This technology that touches deeper financial systems is the blockchain initiated by Bitcoin. As a trustless peer-to-peer value exchange system, it can directly bypass the multi-level clearing systems in traditional finance (what they do is merely calculate amounts).
Moreover, in the blockchain world, each token represents some value, ownership, or even access rights, meaning they are inherently a form of on-chain native goods or services. They can be exchanged through DEX (decentralized exchanges), bypassing currency as an intermediary to directly calculate exchange rates, so not only is physical currency unnecessary, but even currency itself can be entirely dispensed with.
This solution may seem like a fairy tale that Satoshi Nakamoto jumped out of a rock, but in fact, as early as 1875, British economist and logician William Stanley Jevons had already deduced the development path of currency in his work (Money and the Mechanism of Exchange), predicting that the future would enter a stage of barter, and he prophesied that the US dollar was steadily moving toward becoming an international currency.
Moreover, decades of cryptographic practice have validated this conjecture. If we trace back to the beginning, it actually predates Satoshi Nakamoto's 2008 Bitcoin white paper and even dates back to 1982 when the internet was not yet open, when cryptographer David Chaum proposed the idea of anonymous electronic money, roughly preserving the system through member consensus public records, which can be seen as a prototype of blockchain, and was realized the following year, namely Ecash. However, what is referred to here as digital currency CyberBucks is essentially the electronic manifestation of fiat currency.
Ecash cooperated with some banks, and its vision and method are similar to most Web3 payments of today, forty years later. Bill Gates also once contacted the Ecash team, intending to integrate it into the Windows 95 system for global payments, but it ultimately came to nothing. This idea is somewhat akin to Zuckerberg's plan over thirty years later to issue a basket of currencies, Libra, and integrate it into Facebook, only that the latter is more radical, directly issuing currency.
The true creation of currency was proposed by college student Wei Dai in 1998 with B-money, a passionate declaration that opens with a clear statement: "I am interested in Tim May's crypto-anarchism. Unlike communities traditionally associated with the term 'anarchism', in crypto-anarchism, government is not temporarily destroyed but permanently prohibited and permanently unnecessary. This is a community that is powerless against violent threats because violence is impossible. Violence is impossible because its participants cannot be linked to their real names or actual locations."
The basic concept of Bitcoin, released ten years later, originates from this article (especially linking currency to computational costs), suggesting that crypto has been imbued with profound crypto-punk elements since its inception, destined to pursue free will and decentralized power through cryptography as rebels, ultimately expanding from cyberspace to the real world to reshape finance, communication, and governance. Sadly, today's Web3 has embarked on a pilgrimage in the opposite direction.
In the same year that B-money was proposed, cryptographer Nick Szabo independently proposed the concept of Bit Gold (but no one helped him write the code), indicating that Bitcoin has a direct inheritance on a technical level, such as the PoW mechanism, timestamps, and chain structure. Additionally, it is noteworthy that he had already researched smart contracts as early as 1996.
After many thoughts and technological hypotheses and experiments, Satoshi Nakamoto ultimately published (Bitcoin: A Peer-to-Peer Electronic Cash System) in 2008. He built on the foundation of his predecessors, integrating consensus algorithms with public key cryptography, truly realizing a decentralized currency and ushering in the era of blockchain.
However, he stubbornly believed that Bitcoin did not need a scripting system, which provided opportunities for later entrants. For example, in 2012, Yoni Assia proposed the concept of Colored Coins, which is a protocol layer built on Bitcoin to issue assets that lie between FT and NFT, where each attribute represents a color, ultimately forming multiple parameters to create colored coins, thereby mapping multidimensional assets in the real world, such as stocks, taxi services, shopping vouchers, subscription services, and even original masterpieces.
Colored Coins allow Bitcoin to represent various digital assets, but due to Bitcoin's functional limitations, they can only issue and trade, still unable to support Turing-complete scripts. Hence, core team member Vitalik Buterin started anew and released the Ethereum white paper (the next-generation smart contract and decentralized application platform), marking the official emergence of a blockchain with an embedded Turing-complete programming language, allowing anyone to write smart contracts and decentralized applications.
Up to this point, both the theoretical preparations in economics and the technological foundations in cryptography have been established; we should be welcoming a true paradigm revolution.
Conclusion
A true paradigm revolution is not a pilgrimage of lost souls returning to the old order, but rather a steadfast exploration of a new world beyond experience as rebels.
In this bifurcated garden of Web3 payments, the path of the adherents is bustling with the tricks of Happy Beans to attract countless spectators. In contrast, the road of the rebels is fraught with thorns, destined to be "a very arduous journey, yet it is the most reliable path."
From Jevons to Hayek, liberal economists have foreseen that currency will ultimately return to a more essential form of exchange. From cyberpunk to crypto-anarchism, creators and cryptographers have shown us this possibility in the experimental field of the crypto world.
We have discovered a reliable new paradigm. In the next article, we will demonstrate how to build a completely different payment paradigm based on a deep understanding of blockchain characteristics, and in the future, with trends like embedded finance and open banking, attempt to forge a brand new financial world.
On this difficult but reliable path, we look forward to more like-minded partners joining us to contribute to both the technology stack and business scenarios, pioneering our own paradigm revolution. Welcome to follow and discuss ~
