Can blockchain technology be applied to clearing and payment? How to regulate is a huge challenge

     "It is very important not to over-hype this matter, although it seems a little late now. Everyone is talking about blockchain. We must show our work to the world in the next 12 months, otherwise others will think we are a team of paper talkers." This is what a staff member of R3 said in the face of heated public opinion and blank performance. R3 CEV is currently undertaking a blockchain project composed of 30 well-known banks in the world . Its head of research and development said, "A development team in London is currently writing an open source, universal 'shared ledger', which will greatly reduce the coordination costs of banks."

Previously, in "After Bitcoin, what is blockchain?", I mentioned that the mysterious R3 company website is more like a collection of reports, with very limited information about the company's business. R3's statement on the 15th also indirectly proves that the outside world's doubts have always existed. I would like to take this opportunity to talk about the more potential application of blockchain that R3 is researching - clearing and payment.

Will micropayments become popular?

Bitcoin is currently the largest application case of blockchain.

Currently, the US Bitcoin company Coinbase is establishing compliant exchanges in countries around the world, attempting to establish the world's largest Bitcoin exchange and use Bitcoin liquidity to actively develop small-amount payment application scenarios.

Coinbase just released the first Bitcoin debit card available in the U.S., which lets you spend Bitcoin at any merchant — online or offline — just like you would any regular Visa card.

However, I have reservations about this. The price of Bitcoin fluctuates greatly, and it is really difficult to play the role of a currency value measure. Moreover, in September this year, the US commodity regulatory agency defined Bitcoin as a commodity and has not yet recognized its currency status.

Because it is hard for you to bear the fact that the money in your Bitcoin debit card can buy a house today, but can only buy a car in a few days.

But what if we change our thinking and let the blockchain run not Bitcoin but legal currency? A number of banks form an alliance to establish a private chain, transfer money to each other through blockchain technology, and set aside other intermediaries and systems. The currency is only registered and transferred as a digital asset on a chain, thus not subject to the Bitcoin limit of 7 transactions per second. With the addition of electronic wallets and contactless technology, low-cost clearing and payment can be achieved. This seems to light up the road of blockchain payment applications.

What is the difficulty in cross-border payments?

At present, commercial trade transaction settlement and payment must rely on banks. This traditional way of trading through intermediaries requires going through the account opening bank, the central bank, and overseas banks (agent banks or overseas branches of the bank). Each of these institutions has its own accounting system, and they need to establish an agency relationship and have a credit line. Each transaction needs to be recorded in the bank, and settlement and reconciliation with the counterparty are also required, resulting in slow speed and high costs.

Compared with the traditional payment system, blockchain payment is conducted directly between two parties without involving any intermediary institutions. Even if part of the network is paralyzed, it will not affect the operation of the entire system and the cost is low.

For example, the blockchain-based general distributed interbank financial transaction protocol created by Ripple provides users with real-time payment and clearing services across borders and in any currency.

In 2014, Germany's Fidor Bank announced that it had become the first bank to access the Ripple protocol and began to use this innovative underlying protocol to conduct instant and free foreign exchange business. By the way, Fidor was originally a bank with a strong Internet spirit, and its accounts can store Bitcoin.

It also launched a campaign on Facebook called "Like to get deposit and loan interest discounts." However, there are not many fashionable banks like Fidor, and Ripple's global promotion is slow. Currently, there are not many participants. In 2014, it emphasized the promotion of the Chinese market, but it was obviously not smooth.

What is the difficulty in implementing blockchain cross-border payments, which seems to reduce costs, is safe and convenient? There are still many uncertainties in blockchain technology. At the same time, blockchain technology has become a "hypothetical challenge" for central banks because it weakens the need for central banks. The nature of this technology means that it is not easy to integrate into the existing regulatory framework. The borderless nature of digital currency also poses challenges to regulation.

In addition to Ripple, there are many cross-border payment companies based on the Bitcoin blockchain. Unlike Ripple, they provide cross-border payment services based on Bitcoin exchange, which makes them face market risks of large fluctuations in Bitcoin transaction scale and currency value under policy risks and technical uncertainties. At the same time, although the cross-border payment system based on Bitcoin seems to be cheaper, don't forget that the company has invested a lot of money in infrastructure such as mining machines, mining computing power, and prevention of hacker attacks.

A cool technology has the potential to be a catalyst for the transformation of financial infrastructure, as shown by the close attention paid by central banks to blockchain. However, the maturity and application of new concepts and technologies depend on many factors, especially when it comes to financial regulation, which goes beyond the technical level.

The often cited Gartner technology maturity curve (also known as the technology hype chart, which is used to study the commercial feasibility of technology) shows that technology application is not as simple as concept hype. The maturity process of technology is one aspect, and global financial supervision and international political struggles are another aspect. While paying close attention to progress, commercial investment should be cautious and gradual.