This is Whistle's 18th article about PayTech.
Author | Beichen
There are more and more discussions about PayTech. Crypto industry giants such as Solana, Binance, and Coinbase are focusing on Web3 payments. Traditional finance such as Visa, Sequoia Capital, and Temasek are also frequently investing in crypto payments, which gives people a sense of familiarity with what happened on DePIN in early 2023 - all of them are big capitals with influence in the new and old worlds, and the narrative falls on attracting real-world resources. In the third world such as Southeast Asia and South America, USDT has even become a better choice than the national legal currency.
Information from various levels and channels all point to the same direction, that is, Web3 payment (PayFi/encrypted payment) is gaining momentum. After all, if the global payment market is compared to a dream wedding cake, then even a single crumb from the cake will create a multi-billion dollar giant, and this gold rush has just begun.
However, since the concept of Web3 payment encompasses too many unrelated things, we need to first clearly define whether it is FinTech (financial technology) evolved from the traditional financial system with stablecoins such as USDT as the core, or a payment system based on distributed ledger technology (DLT) evolved from Bitcoin.
Web3 payment realized by financial technology only adds stablecoins such as USDT to the original legal currency, and still uses the traditional nested clearing and settlement system. The only value of this kind of product is stablecoins such as USDT as shadow dollars, otherwise it is no different from supporting Q coins and Happy Beans.
Web3 payments based on distributed ledger technology are now very convenient for transfers, but high-frequency payments have not yet been achieved. This type of Web3 payment is actually an economic idea that has been brewing for hundreds of years and has been verified in the cryptographic test field over the past decade. Going in this direction, you will find that a magnificent journey is setting sail at dawn!
1. Web3 Payment under the Traditional Financial Technology System
Most Web3 payment products refer to stablecoins such as USDT. The product level is still the same as other Web2 payments. They are all applications developed based on the API of a certain link in the traditional payment system, but they only support currencies such as USDT. And because alternative currencies are grafted on, the channel cost is actually higher than that of legal currency.
Let us first get rid of the complicated jargon in the technology and financial fields and clarify the true nature of the traditional financial technology payment system. The quality of Web3 payment will then be much clearer.
1.1. Traditional payment systems and the evolution of PayTech
Let’s take the payment scenarios in daily life as an example to analyze the traditional payment processing process. When we check out at a convenience store, we just scan the code with our mobile phone and confirm the payment. However, this action of less than one second involves six or seven parties and more than a dozen procedures to complete.
First, the customer will choose a payment method (such as a credit card, debit card, or digital wallet such as Alipay). After confirmation, the payment gateway will encrypt the transaction information and pass it to the payment processor/processor. After checking that there is no abnormality, it will be released and transferred to the card organization (such as Visa, MasterCard). The card organization will then transfer it to the issuing bank of the bank card. After verifying whether it is sufficient, the funds will be deducted from the customer's account (but note that it is not transferred directly, but held in trust first). Then the information will be returned along the original route, and sent to the merchant through the card organization, payment processor/processor, and payment gateway in turn. The merchant will show that the payment is successful. However, it will take at least one working day for the actual receipt of the account, and the clearing and settlement process is also very complicated, so I will not go into details here.
The complex processing flow of the modern financial system was gradually established in the era of horse-drawn postal carriages. Fintech companies did not change the system, but cut into a certain link in the process and were responsible for accelerating the processing of information. This is the whole value of FinTech. After all, with the accumulation of countless transactions, each link means a huge amount of wealth.
Although banks have been electronic since the 1970s, the idea of FinTech has always been to move business online to speed up processing. The internal structure and processes of banks have not changed. At most, they have promoted the construction of the middle platform for the purpose of intensification in order to compete with third-party payment companies.
As an inter-bank clearing network, the core business of the card organization is to solve the issuance, settlement and reconciliation of inter-bank transactions. It also began to be digitized in the 1970s, but the business logic is no different from the era of paper bills. FinTech simply speeds up the processing.
However, card organizations represented by Visa launched payment terminals - POS machines based on this, which not only quickly occupied the mainstream payment market in the retail industry, but also the payment ecosystem has been developed around payment terminals since then. For example, a group of hardware manufacturers represented by VeriFone have been created, and the role of payment service providers (PSPs) has been differentiated, and the tasks of payment service providers have been abstracted into payment processors/processors and payment gateways.
If the card organization allows merchants to receive transfers from more banks by forming a bank network, then PSP (payment service provider) allows merchants to receive transfers from more card organizations and other payment channels (such as Paypal later). As for payment processors/processors and payment gateways, they are responsible for transmitting and checking information at different stages.
FinTech in the above links is all about speeding up the efficiency of information processing. The entire process is still complicated and lengthy, and of course the cost is high. For example, the market size of the humble payment processor alone is expected to exceed US$190 billion by 2030.
The FinTech that can be truly called revolutionary is Paypal in 1998. Users can register an account/digital wallet with an email address, and after recharging, they can bypass the traditional financial system and transfer money losslessly within the platform. Only when withdrawing cash, they have to deal with the bank and incur fees. Although Paypal's processing method is no different from the Happy Beans of game companies, it is this simple and crude method that has torn a hole in the traditional financial system, forcing traditional finance to stumble into the era of Internet payment. The price is that financial technology companies represented by Paypal are constantly facing prosecution and suppression.
Although the payment field has grown rapidly in business after Paypal, for example, the up-and-coming Alipay has gradually built a financial service platform that can completely replace banks, and even established a credit system that surpasses the banking system, but the progress in FinTech is only micro-innovation such as QR codes, and there is no revolution in the mechanism.
1.2. Web3 Payment Based on Fintech
Now, whether it is cryptocurrency giants or traditional payment companies, the Web3 payment projects they have launched are all based on traditional payment systems, but they can still be distinguished and introduced in more detail.
1.2.1. Traditional payment companies: Treat USDT as happy beans
Traditional payment companies are actively entering Web3, although they also consider acquiring new users, but to a large extent it is still an offensive defense, fearing to miss the trend of cryptocurrency. Just like the candidates in the US election are competing to express their support for cryptocurrency, they just spent a little effort to win resources for non-core strategic maps.
In fact, traditional payment companies have not changed the traditional financial system in the past, and entering Web3 will not change it either. They simply take advantage of their existing market share and add cryptocurrency as an asset class to the many services they provide. The technical difficulty is equivalent to adding happy beans.
From banks (such as ZA Bank) to card organizations (such as Visa) to payment service providers (such as PayPal), they claim to embrace crypto and have indeed conducted quite in-depth research, but what they say is not important, what is important is what they actually do. All the businesses can be summarized as allowing consumers to use bank cards to purchase cryptocurrencies, transfer money, and make payments, that is, as a "channel for exchange between legal currency and cryptocurrency" to earn exchange fees, which is completely an OTC market. As for technologies such as "making the end consumer experience seamless", there is nothing strange about it, because Happy Beans is the same.
The only traditional payment company that can really go a step further in Web3 payment is PayPal, which has issued the US dollar stablecoin PYUSD (PayPal USD) on Ethereum and Solana. PayPal claims that it is to "use distributed ledger technology (DLT), programmability, smart contracts and tokenization to achieve instant settlement and be compatible with the most widely used exchanges, wallets and dApps...", because this not only earns the exchange fee between legal currency and PYUSD, but also prolongs the sedimentation time of funds, which is the same as the original intention of Binance to launch BUSD.
PayPal's longer-term goal is to replace bank cards as the main payment channel. Of course, at present, it has neither the basic market of e-commerce platforms nor the market of offline merchants, and major platforms are also launching their own payment tools (such as Apple Pay), so the chances of trying to return to its peak through PYUSD seem slim.
Compared with PayPal, which lacks payment scenarios, Square, a payment platform established in 2009, has established a huge merchant payment network offline and promoted its own payment tool CashApp through rate discounts, which seems to be replacing bank cards as the main payment channel. It is worth mentioning that Square's founder Jack Dorsey is also the co-founder and former CTO of Twitter.
Square's official way to enter Web3 is to develop Bitcoin mining machines, but its former employees came out in 2023 to found the Web3 payment company Bridge, and received $58 million in investment from Sequoia Capital, Ribbit, Index and other institutions, and sold it to payment processor Stripe for $1.1 billion in October. What Bridge actually does is to let customers deposit US dollars and euros, create stablecoins, and then use stablecoins to transfer money. If you use stablecoins as happy beans, you will suddenly see the light. Of course, I am not criticizing Bridge. In fact, Bridge has quietly realized the grand narrative that Ripple promised that year.
Another similar product is Huiwang, which is said to be developed by a Chengdu team. However, the main reason why it has been able to succeed in Southeast Asia is that there is relatively large policy space there, and there is undoubtedly a huge demand for payment tools for the black and gray industries.
A product more basic than payment tools is the currency itself. In addition to USDT and USDC, many stablecoins for specific scenarios have emerged, such as OUSG and USDY launched by Ondo Finance supported by BlackRock, which are used to invest in short-term U.S. Treasury bonds and bank demand deposits.
In short, the technical difficulty of Web3 payment of traditional payment companies is equivalent to that of Happy Beans, and the threshold lies in whether they can find their own payment scenarios.
1.2.2. Cryptocurrency giants: keen on issuing co-branded bank cards
If traditional finance earns OTC fees by supporting Happy Beans, then cryptocurrency giants do the opposite and earn OTC fees by supporting bank cards. In short, they are working in both directions to open up the channel between bank cards and Happy Beans.
The reason why exchanges such as Coinbase and Binance choose to cooperate with established payment giants such as Visa and MasterCard to issue co-branded crypto bank cards is to leverage the infrastructure of traditional finance to attract more crypto assets, but there is also a hidden reason, which is to build a brand. After all, as long as the card is issued, it can claim to support "exchange and consumption of cryptocurrencies at more than 60 million online and offline merchants worldwide." In fact, it only needs to cooperate with a member bank in the Visa international organization, or even directly outsource it to a third-party card issuer.
There are countless cases of this kind. Some of them are like the period around 2015 when mobile payment first became popular. Many mobile payment startups emerged, and their technologies and even licenses were shelled. However, this did not prevent the capital market from favoring this new trend.
The operating costs of the co-branded cards of cryptocurrency giants are actually quite high. For example, the OneKey Card launched by the hardware wallet OneKey was offline after more than a year of operation. According to the announcement, "There are many challenges here. It is very difficult to balance these factors, such as small team low-cost operation, low handling fees, stable card segment operation, anti-black and gray production, and compliance."
Later, PayFi, a new on-chain financial concept built around sending/receiving settlement, emerged, attempting to redefine payment, claiming to "break away from the constraints of the traditional banking system, allowing users to send cryptocurrencies globally at low fees, and choose to easily withdraw crypto assets to personal custody." However, as far as the current solutions are concerned, they are all trying to seize the market of OTC merchants within the framework of the traditional payment system, and their compliance is destined to be no different from the traditional banking system and Happy Beans.
The Web3 payment solution that can truly bring about a mechanism revolution in PayTech must be a solution based on distributed ledger technology.
2. Blockchain payment: Blockchain payment within and outside the supervision is two different species
Whether it is the central bank's CBDC, private institutions or public chains, distributed ledger technology (DLT) cannot be avoided when discussing Web3 payments. Even though many of them treat USDT as happy beans, at least the happy beans here are issued based on DLT.
DLT is essentially a database maintained by multiple nodes, each of which shares and synchronizes the same copy. Blockchain is a type of DLT, but DLT is not necessarily a blockchain. With the impact of blockchain and cryptocurrency caused by the birth of Bitcoin, DLT is increasingly being used as a new infrastructure to replace traditional centralized entities to transfer funds. Of course, most of them are still in the experimental stage as alternatives.
The biggest advantage of DLT is that it is a peer-to-peer (P2P) network, so the two parties to the transaction no longer need complex intermediaries, and can directly verify financial transactions through public ledgers to achieve clearing and settlement, and DLT also operates 24/7. Another advantage of payment based on DLT is that the currency is programmable - not only can different currency rules be defined through smart contracts, but more complex functions can be achieved when interacting with other smart contracts.
The above are the common advantages of using DLT for payment, but the problem is that the differences between DLT and DLT are so great that there is even reproductive isolation, such as public chain and consortium chain. Moreover, even if they are all public chains, the confirmation speed and cost structure may vary greatly just by the different types of consensus algorithms (such as PoW and PoS), not to mention payment applications built on different types of DLT.
The industry seems to have ignored these differences, and only cares about the speed of TPS and whether it is compliant. However, unlike the academic world, which relies on peer review (maybe more papers become authoritative), the development of DLT will ultimately be verified by the market.
2.1. Alliance blockchain and CBDC are products of collusion
The alliance chain is largely a product of collusion with the centralized system - based on DLT technology, and strictly controlling access rights. This seemingly decentralized centralized solution can meet regulatory compliance, but in essence it is still a closed system. This is destined to only play a role in reducing costs and increasing efficiency in a certain link within the traditional financial system, and will not change the system itself.
In the most mainstream narrative, the central bank digital currency (CBDC) seems to be the end point of Web3 payment. Although CBDC itself is a false proposition, not only from a technical perspective, but also from a monetary perspective. Some CBDC solutions are not as good as consortium chains, because they are basically centralized databases, and can only be said to have borrowed some technical features of DLT, such as multi-nodes and consensus mechanisms. But what is even more ridiculous is that some people use the technology of centralized databases to piece together a relational database with a version number, without blocks or chains, but boast about it as a blockchain innovation, such as Sui.
Therefore, payment applications and CBDC based on alliance chains are only local tool iterations for the internal clearing and settlement systems of organizations, rather than involving a paradigm revolution in the entire financial system. In theory, these tool iterations will be more effective if they are directly used in centralized databases.
This phenomenon of using new technology to repeat old business is just a special product of the transition stage. Hong Kong has accumulated many cases in building financial products based on DLT, but it has not brought about a qualitative leap in business so far. So let's focus on those Web3 payments that are truly built on the public chain.
2.2. Public chains are imitating alliance chains
True Web3 payment should be built on the public chain, which is also the original vision of Bitcoin and blockchain. Over the years, this idea has been continuously expanded. In July this year, Lily Liu, chairman of the Solana Foundation, formally proposed the concept of PayFi.
She defines PayFi as "a new financial primitive built around the time value of money", a financial innovation above the settlement layer. DeFi solves transaction problems, while PayFi involves a wider range of economic activities - sending and receiving, such as supply chain finance, payroll loans, credit cards, corporate credit, interbank repo and other scenarios, so the market is also larger.
Lily Liu believes that PayFi's success requires three conditions: fast and low cost, widely used currency, and developers. The final conclusion is that only Solana can perfectly meet all the requirements. There is nothing wrong with the previous discussion, but this conclusion will definitely attract opposition from many competitors, such as Ripple.
Ripple officially started PayFi in 2012 (the term did not exist at the time), positioning itself as a blockchain that allows global financial institutions to transfer money using XRP. It was once expected to break the SWIFT monopoly and was selected as one of the 50 most innovative fintech companies by Forbes in 2019.
Ripple's Layer 1 is XRP Ledger, a blockchain based on federated learning. Strictly speaking, it is a consortium chain, although it claims to be a public chain (it can only be said to be open source). The initial business was to copy Bitcoin, but faster - allowing everyone to directly use its native asset XRP to transfer money.
The Ripple team holds a large amount of XRP and continues to sell it for profit. They have also repeatedly pulled up the secondary market by releasing buyback news and cooperating with market makers to increase trading volume. When they sold XRP, they deliberately blurred the relationship between XRP and Ripple's equity, so they were targeted by the SEC and have been embroiled in disputes for four years. They should be settled in the near future, but this does not hinder the basic fact that XRP is useless. Ripple later realized that no one would use XRP, a volatile air coin, to pay (even Bitcoin is not suitable for retail payments due to its volatility), so it tried to launch the stablecoin RLUSD, build CBDC for various countries, and provide asset tokenization and custody services.
If you only judge based on Ripple's promotional materials, you will think that Ripple has covered more than 80 payment markets around the world and processed more than 50 billion US dollars in transactions by virtue of its ability to complete payments within seconds. But in fact, Ripple's xCurrent for banks only records the information of cross-bank transfers on Ripple's blockchain. The core automatic reconciliation engine technology is actually no different from traditional clearing institutions. Metaco, a digital asset custody technology provider acquired by Ripple in 2023, mainly reflects the value of this business in licenses and channels. As for using XRP, a price-volatile air coin, for consumer payments, it is even more of a false proposition.
In a nutshell, Ripple has played the role of a top marketer in the PayFi market. Just like the crypto companies mentioned above, as long as they cooperate with a member bank in the Visa International Organization, they can claim that their products can "exchange and consume cryptocurrencies at more than 60 million online and offline merchants worldwide."
In short, almost all public chains emphasize how fast, cheap, and compliant PayFi is when talking about it, but PayFi products based on public chains (such as Huma Finance) still use blockchain as a bookkeeping tool within the traditional payment system. In addition to the lack of KYC, what is the difference with the consortium chain?
2.3. Bitcoin Lightning Network and its limitations
Therefore, we still have to look at crypto-native solutions built on public chains, but they are often limited by the block size and confirmation time of public chains, so they can only be used for remittance transfers and cannot support high-frequency small payments in daily life. The Bitcoin Lightning Network is a good solution.
Simply put, a payment channel is established off-chain, which is equivalent to a multi-signature wallet jointly created by account A and account B. They both recharge the wallet and can transfer money unlimited times (each transfer actually updates the wallet balance allocation status to form a new UTXO, that is, unspent transaction output). It will not be verified by the Bitcoin network until the last transfer, that is, when the channel is closed. Therefore, the Lightning Network can achieve high-frequency payments without changing the underlying mechanism of Bitcoin.
At this point, you may have a question, that is, the balance changes in the payment channel are not on the chain, so how to ensure security? The security of the traditional financial system depends on the credit guarantee of the institution, but the Lightning Network ensures the security of the payment channel through cryptographic technologies such as LN-Penalty and HTLC (Hash Time Lock Contract), which will not be elaborated in detail.
It should be noted that the security channel just discussed is one-to-one, but in actual transfers, it is impossible to build a multi-signature wallet with each person separately, so a one-to-many solution, that is, multi-hop routing technology, emerged. In layman's terms, there is a payment channel between A and B, and there is also a payment channel between B and C. Then A directly transfers money to B, and B transfers money to C. Account B acts as a relay node, and A and B no longer need to build a separate payment channel. According to the six degrees of separation theory, you can get to know anyone in the world through six people.
This one-to-many solution requires the relay user to be online regularly and have sufficient funds, otherwise the transaction may fail. The Lightning Network uses multi-path routing, node redundancy and other technologies to overcome these challenges. However, in actual use, this design is too idealistic - assuming that users are willing to lock up a large amount of funds in advance and assuming that users are willing to tolerate various technical limitations, which runs counter to the capital efficiency problem that PayFi originally wanted to solve.
The Lightning Network solution was later expanded from Bitcoin to other public chains. For example, the Fiber Network built on Nervos CKB has Turing-complete smart contract capabilities and is more flexible in asset management, but it still has not escaped the dilemma brought about by payment channel design.
This leads to a very profound question: finance is a complex system, and it may be difficult to reshape the entire payment system with only technical innovation. So what kind of design can bring about a systematic paradigm revolution?
3. The end of money is no money
Finance has always existed as a complex system. It is difficult to bring about substantial changes with technology alone, so we need to re-examine this system.
Finance is a tool system developed to serve real-world transactions, in which currency plays the role of a value accounting unit, which has led to extremely complex trading systems, clearing systems, and credit systems. Precisely because we cannot avoid currency, or more precisely, legal tender, or the U.S. dollar, the current Web3 payment track and even the entire crypto market have the highest pursuit of being included in the economic system of the shadow dollar represented by USDT.
"The great fortune of man is that he must embark on a very difficult path, whether in adulthood or childhood, but it is the most reliable path; the misfortune of woman is that she is surrounded by almost irresistible temptations; she is not required to strive upward, but is encouraged to slide down to reach bliss. When she finds that she has been fooled by a mirage, it is too late, and her strength has been exhausted in the failed adventure."
This passage comes from Simone de Beauvoir's The Second Sex in 1949. I think the word "woman" in it can be replaced by "crypto". At least the Web3 payment track is running selflessly on this road to bliss. What I want to point out is that it is entirely possible to follow another extremely difficult road, which is derived from hundreds of years of economic thinking and has been initially verified in the cryptographic test field over the past decade!
3.1. The evolution logic of currency
If we review the history of currency development from shells to digital currencies, we will come to an interesting conclusion - the intermediary of currency may disappear.
Before the birth of currency, people used barter as a means of exchange. However, this method was too inefficient. Not only did it require precise matching of the needs of both parties to the transaction, but it was also difficult to give a fair exchange rate during the exchange. In addition, the goods were difficult to divide evenly.
Therefore, it was natural to adopt some commonly needed and easy-to-store commodities as general equivalents, entering the commodity currency stage, such as animal skins, livestock (the word "money" in many languages has etymological relations with livestock), grains, cloth, salt, and decorations such as shells.
Later, as the scale of trade expanded, the requirements for portability, durability, divisibility and other characteristics became increasingly higher, and currency began to concentrate on metals, entering the metal currency stage.
However, with the development of the scale of trade, even precious metal currencies were inconvenient for merchants to store and carry in large quantities. They chose to store precious metals in goldsmiths with safes and guards, and then directly traded in the market with storage bills similar to warehouse receipts. This bill was gradually recognized by law as a quasi-currency.
Since no one would frequently access their stored precious metals, goldsmiths would often over-issue bills, and the value of the bills was based on the credit of the goldsmiths. Later, more professional banks evolved from goldsmiths (most bankers in London in the 18th century were still members of the Goldsmiths' Guild), and from then on, based on institutional credit, they directly entered the paper currency stage, and of course, established relatively standardized currency issuance and redemption rules.
Speaking of Jiaozi, as the earliest paper currency, its issuance background in the Southern Song Dynasty was similar, and its subsequent development path was also similar. Private commercial institutions first issued and competed freely, and then were monopolized by the government, backed by national credit, and the issuance right was concentrated in the central bank, and the printed legal tender was forced to circulate (this is extremely bad!).
After entering the stage of national credit currency, the right to issue currency has become part of national sovereignty, and the currency itself has not undergone any major changes (at most, after the collapse of the Bretton Woods system, it was liberated from the constraints of the gold standard and further released). The next development is about technology.
As the scale of trade expands, paper money (essentially bills) can no longer meet the demand. However, if both parties open accounts in the same bank, they do not need to use paper money. The transaction can be completed through pure bookkeeping such as bank transfers. The bank only needs to perform complex clearing behind the scenes. This clearing can naturally serve transfers between different banks, so a banking network and a banking credit system have gradually formed, including the credit cards and electronic payments we are familiar with. This is why today's financial system is so bloated. It is the result of accumulation in the process of historical evolution and has a very strong path dependence.
Looking back, we can find that money is generated by service trade in order to efficiently match supply and demand, from commodity currency to credit currency, even national credit currency is no exception.
However, national credit currency depends on the regulation of the central bank. Regardless of whether the regulation is correct or not, the interests of the central banks of each country are inconsistent, so these policies will eventually disrupt the original price structure and guide resources to the wrong direction. Mistakes continue to accumulate until they are finally gathered together and liquidated. Therefore, Hayek advocated the denationalization of currency, and a free currency movement like the free trade movement in the 19th century was needed to form a new banking system.
Since, with the evolution of exchange mechanisms (especially clearing systems), money has evolved from a physical medium of exchange to an abstract unit of account, can we go one step further and directly complete the exchange of goods and services? After all, the emergence of money is only to overcome the limitations of barter. This is by no means a regression to primitive society. The reason why barter was replaced by money was because the market at that time was too small and there was not enough coincidence to match the demand.
However, as the market scale expands and the exchange mechanism evolves, these problems can be overcome. In fact, in Argentina in the 1990s, some communities have tried to use internal credit notes as an alternative currency to help vulnerable groups participate in economic activities by bartering, and have achieved phased success (the peak was 6 million people using it), but later due to the flooding of the issuing end, it ended in failure, just like the junk bonds issued by local governments today. However, the crypto world directly eliminates the possibility of such failure in technology.
However, I would like to add that the author does not think that money should be completely eliminated. He just thinks that in the future, money will no longer be needed as a transaction medium, but a common value reference standard is still needed. After all, the ratio between the vast number of commodities is almost endless. The ideal unit of measurement should not be a fiat currency with unlimited inflation, but it should not be an asset with limited supply such as gold or Bitcoin, because this means that the cost of latecomers must be higher than that of early holders, which will inevitably lead to holders tending to hoard, and ultimately cause unnecessary deflation.
3.2. Cryptopunk Experiments Represented by Bitcoin
This technology that touches the deeper financial system is the blockchain that Bitcoin started. As a trustless peer-to-peer value exchange system, it can directly skip the multi-level clearing system in traditional finance (what they do is nothing more than calculating the amount).
Moreover, in the blockchain world, each token means a certain value, ownership or even access rights, which means that they are naturally a kind of native commodity or service on the chain. They can be exchanged through DEX (decentralized exchange), skipping the intermediary of currency to directly calculate the exchange rate, so not only does not physical currency need to be required, but currency is not even required at all.
This plan seems to be a fantasy that Satoshi Nakamoto came up with out of nowhere, but in fact, as early as 1875, British economist and logician William Stanley Jevons deduced the development path of currency in his book (Money and the Mechanism of Exchange), believing that the future would enter the stage of barter, and he prophetically predicted at the time that the US dollar was firmly moving towards an international currency.
And the practice of cryptography over the past few decades has also verified this conjecture. If we trace back to the starting point, in fact, long before the Bitcoin white paper published by Satoshi Nakamoto in 2008, and even in 1982 when the Internet was not yet open, cryptographer David Chaum proposed the idea of anonymous electronic currency, which roughly saves the system through public records of member consensus. It can be said to be the prototype of blockchain, and it was realized the following year, that is, Ecash. However, the digital currency CyberBucks mentioned here is actually the electronic form of legal currency.
Ecash has worked with some banks, and its vision and approach are similar to most Web3 payments today, 40 years later. Bill Gates also contacted the Ecash team and wanted to integrate it into the Windows 95 system to achieve global payments, but it ended in failure. This idea is similar to Zuckerberg's idea of issuing a basket of currencies Libra and integrating it into FaceBook more than 30 years later, except that the latter is more radical and directly issues currency.
The real currency creation was B-money proposed by college student Wei Dai in 1998. It was a passionate manifesto that clearly stated at the beginning, "I am interested in Tim May's crypto-anarchism. Unlike communities traditionally associated with the term "anarchism", in crypto-anarchism, the government is not temporarily destroyed but permanently banned and permanently unneeded. This is a community where the threat of violence is powerless 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, which came out ten years later, was derived from this article (especially the linking of currency to computing costs). It can be said that crypto has had a profound crypto-punk color since its inception. Its destiny is to use cryptography as a rebel to pursue free will and decentralization, and eventually expand from cyberspace to the real world to reshape finance, communications 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 also independently proposed the idea of Bit Gold (but no one helped him write the code). It can be said that Bitcoin has direct inheritance in terms of technology, such as PoW mechanism, timestamp and chain structure. In addition, he had already studied smart contracts as early as 1996.
After many conjectures and experiments on ideas and technologies, Satoshi Nakamoto finally published (Bitcoin: a peer-to-peer electronic currency system) in 2008. Based on the work of his predecessors, he combined 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 gave latecomers an opportunity. For example, in 2012, Yoni Assia proposed the idea of Colored Coins, a protocol layer built on top of Bitcoin for issuing assets between FT and NFT. Each attribute is a color, and ultimately many parameters make up a colored coin, so it can map multi-dimensional assets in the real world, such as stocks, taxis, shopping vouchers, subscription services, and even original paintings.
Colored Coins allow Bitcoin to represent various digital assets, but due to the functional limitations of Bitcoin, it can only be issued and traded, and still cannot support Turing-complete scripts. So Vitalik Buterin, a core member of the team, started a new project and published the Ethereum white paper (the next generation smart contract and decentralized application platform). From then on, the blockchain with built-in Turing-complete programming language was officially launched, allowing anyone to write smart contracts and decentralized applications.
At this point, everything from the theoretical preparation in economics to the technical foundation in cryptography has been in place, and it is time to embrace a true paradigm revolution.
in conclusion
A true paradigm revolution is by no means a pilgrimage of return as a convert to the old order, but a firm exploration of the new world beyond experience as a rebel.
In the garden of forked paths of Web3 payment, the converts are performing the trick of happy beans to attract countless spectators. The rebels’ path is full of thorns and is destined to be “an extremely difficult path, but it is the most reliable path.”
From Jevons to Hayek, liberal economists have foreseen that money will eventually return to a more fundamental form of exchange. From cyberpunk to crypto-anarchism, creators and cryptographers have shown us this possibility in the crypto world’s testing grounds.
We have discovered a reliable new paradigm. In the next article, we will show how to build a completely different payment paradigm from scattered technology fragments based on a deep understanding of the characteristics of blockchain, and try to become a brand new financial world in the future with trends such as embedded finance and open banking.
On this difficult but reliable road, we look forward to more like-minded partners joining us to contribute to the technology stack and business scenarios and open up our own paradigm revolution. Welcome to follow and discuss~
