Since 2009, the creation of Bitcoin has started to challenge the traditional monetary system. The birth of the first cryptocurrency solved the need of a secure and decentralized P2P transaction network, and yet, during its evolution in the last decade, this concept gradually expanded into general blockchain uses, as well as recent phenomena like DeFi and NFTs. Originally designed to replace just one component of the vast financial world (payment networks), cryptocurrencies are now due for replacing banks and financial institutions altogether.
Amid the enormous success and proliferation of thousands of digital assets, traditional finance companies have but two choices: adapting to the new reality, or repeating the tale of Blockbuster and countless other examples.
A recent announcement made by VISA, one of the biggest payment processors that often serves as the benchmark for crypto transaction capability, highlights that the adaptation process has to begin now.
How might central banks, businesses & consumers seamlessly exchange value across #blockchain networks, no matter the currency? Check out Visa’s latest thinking on the challenge of cross-chain interoperability: https://t.co/lIOzEqAhNp pic.twitter.com/wHrNGYTBya
— VisaNews (@VisaNews) September 30, 2021
Last week, Visa Inc (NYSE:V) announced its plans for a Universal Payment Channel that accepts both fiat and cryptocurrencies, “acting like a hub, interconnecting multiple blockchain networks and allowing for secure transfer of digital currencies,” its release reads.
The Need to Unify Cryptocurrencies
VISA entering the digital assets space might seem controversial, given its spirit of opposing incumbents exactly like it. Yet, VISA is tackling a real issue in the blockchain ecosystem — its extreme degree of segregation. Dozens of popular blockchains, thousands of different tokens, and very few of them are effectively connected with each other.
Swaps between different cryptocurrencies and chains are not obvious operations and, when available, they might result in very expensive costs due to high gas fees, bridging fees and trusted bridge architectures, which make them inaccessible or risky to small customers.
VISA is taking the role of a trusted third party that would be able to facilitate cryptocurrency transactions, keeping them safe and simple. Of course, VISA is set to compete with a number of crypto-native incumbents.
Celer provides a universal bridge between blockchains and other layer-two solutions. The Layer2 Finance platform guarantees a decentralized bridging process, since it is backed by the security of the layer-one blockchains it’s tethered to, such as Ethereum. Layer2 is focused on DeFi usage, acting as a “transportation network” between different chains and rollups.
cBridge is acCELERating!
Exceed $400M in total cross-chain transaction volume? Done. Next milestone in sight. Much to our growing list of 20+ partners, 21K+ users.
https://t.co/35fICZsz3A: most number of chains with the lowest fee in fully non-custodial mode. pic.twitter.com/bxzNevu0Cc
— CelerNetwork (@CelerNetwork) October 9, 2021
The Celer cBridge is a more generalized token transfer network, which works through Celer’s State Guardian Network, first released on the Ethereum mainnet.
Another major player in the cross-chain arena is Wanchain, which, like its name suggests, aims to become the hub of all blockchains and connect them with each other. Wanchain uses advanced cryptography to guarantee the security of funds being bridged between blockchains like Ethereum, Bitcoin, Binance Chain and many others.
Web 3.0 is:
— Wanchain (@wanchain_org) October 9, 2021
Wanchain can be considered as the more enterprise-focused of the two, with particular attention given to integrations with private blockchains. It also supports private transactions, which is a major prerequisite for enterprise adoption.
Unified Payment Channels Will Connect Old and New Finance
The growth of digital assets is not just about independent digital protocols, but also government-led adoption. Central Bank Digital Coins (CBDCs) are being explored by the majority of global central banks, with the Digital Yuan being furthest ahead. CBDCs are likely to be much more preferable to average users — they are guaranteed by the government, have little volatility and are very unlikely to outright fail. Thanks to their familiar features and guarantees, CBDC might be a gamechanger in worldwide finance, allowing faster and lower cost transactions if compared to traditional networks.
In such a scenario, where digital assets are used in day-to-day life by billions, the role of a payment processor like VISA will necessarily need to change. Since they are no longer required to facilitate the transactions themselves, it’s only natural that they will be useful as cross-chain hubs, for example connecting CBDC chains with the open blockchain world — a necessarily centralized operation. With its Universal Payment Channel, VISA might just be preparing for this kind of paradigm shift.
A Call to Financial Firms and Investors
The financial world is changing before our very eyes, and this process will bring disruption to the old, stubborn financial giants. While VISA seems to be leading the avangarde, there are many other financial institutions (for example, MasterCard) that are still sleeping on the upcoming paradigm shift. But this doesn’t mean they are doomed — their wealth and power still remains. One possible option for such companies is simply to purchase a crypto-native company working in the cross-chain space, this is quite standard practice.
Yet, while flexing cash might save a few, investors and financial institutions would do well to wake up from their slumber sooner rather than later. Digital assets offer a vast new world of possibilities and solutions to the traditional framework, such as fast and simple transactions that can connect all the world and all currencies — including people and areas that have been unbanked until now.
If the ultimate vision of cryptocurrencies comes even 50% of its intended way, governments, firms and investors who are spending resources in making the crypto system accessible, safe and trustworthy, will no doubt be advantaged in generating value for a society that will never be the same.