Further Discussion on Blockchain Payments

Recently, I shared my views on blockchain payments in a Q&A article.

This perspective attracted quite a bit of feedback from readers, and a keen reader on Twitter even listed some of the latest developments in blockchain payments.

After reading these viewpoints and the examples provided by readers, I felt that some arguments in the article lacked rigor, and some points were not clear enough.

Therefore, I would like to write another article to more comprehensively share my views on "blockchain payments."

First of all, when I refer to "blockchain payments," I do not mean those so-called payments made using consortium chains, but rather payment technologies based on public chains that anyone can use without barriers.

To further clarify, the medium used for payments must be cryptocurrency assets issued on public chains.

So, when I talk about "blockchain payments," I am specifically referring to payment scenarios where cryptocurrency assets operate on public chains—this is my technical definition of "blockchain payments."

Secondly, when I focus on an application of blockchain technology, my starting point is always based on ordinary retail investors. If an application does not become a necessity in the lives of ordinary retail investors or fails to generate a positive wealth effect, I believe its significance is limited or its prospects are constrained—this is my consideration of "blockchain payments" in terms of application.

Finally, the direct users of "blockchain payments" are humans, not AI (I believe AI-based "blockchain payments" have a very bright future, a topic I have shared in previous articles and will not discuss further here).

Therefore, my judgment on the potential of "blockchain payments" is based on these three perspectives, all of which are indispensable.

From these three perspectives, I currently see two main scenarios for blockchain payments:

One is using cryptocurrency assets (Bitcoin, Ethereum, stablecoins, etc.) to directly purchase goods at certain offline retail stores;

The other is (for example, on Uniswap) using cryptocurrency assets (especially stablecoins) for various token swaps.

Let's first look at the second application.

I believe this is a truly native blockchain application and will definitely become a necessity in the future. However, the popularization and prevalence of this application require two prerequisites: a good user experience and a rich application ecosystem.

When users no longer need a cryptocurrency wallet and can enjoy an experience similar to mobile internet applications, then the experience of this application will meet user needs.

When the cryptocurrency ecosystem has a variety of indispensable apps in our lives, the applications in the cryptocurrency ecosystem will become very significant.

At that time, the demand for various application tokens will necessitate a large number of token swaps, and this "payment" application will truly thrive. However, I cannot determine when that time will come, but I estimate it is still some distance away, so I believe this type of "payment" scenario is unlikely to see explosive growth in the short term.

Next, I want to share my views on the first application.

Using cryptocurrency assets to directly purchase goods at offline retail stores has a long history. However, its depth and breadth of popularization have always been very limited.

I believe there are two main reasons: first, the user experience is poor; second, there are regulatory obstacles.

User experience can be improved, but the regulatory obstacles present significant uncertainty.

A typical case is the use of cryptocurrency assets (such as stablecoins) for cross-border payments, as mentioned by some readers.

In cross-border payments, if the amount involved is small, it may be manageable, but once the amount is large and involves the purchase of offline assets, regulatory obstacles will definitely arise.

If it is a small cross-border payment, current fiat currencies are sufficient to meet the demand. For example, in some overseas countries (like Singapore), we can use Alipay or credit cards. In such cases, we might use cryptocurrency payments out of novelty, but why must we use cryptocurrency payments?

In some special applications, to protect personal information, some applications offer cryptocurrency payments, but such applications are still rare and may not become mainstream in society in the future.

Therefore, in small payments, I do not see the significant advantages of cryptocurrency payments over traditional electronic payments.

If it is a large payment, it will definitely involve strict regulatory scrutiny.

For example, when purchasing real estate across borders, not to mention using cryptocurrency assets, even using fiat currency, the source of the buyer's funds is subject to strict government regulation.

In the future, if cryptocurrency assets (such as stablecoins) can be used to purchase these large assets, the regulation they face will certainly not be weaker than that of fiat currency.

In this case, if the buyer's cryptocurrency assets cannot smoothly pass government scrutiny, they will not be used for such payments.

If the buyer's cryptocurrency assets can smoothly pass government scrutiny, I believe such individuals are likely to also have legitimate dollar assets. Because in today's society, it is much easier to prove the legitimacy of dollar assets than to prove the legitimacy of cryptocurrency assets.

If a buyer has both legitimate cryptocurrency assets and legitimate dollars, why would they necessarily use cryptocurrency assets for payment?

Therefore, I believe such payment applications have very limited significance for retail investors.

On Twitter, a reader listed the recent developments in "blockchain payments" (https://x.com/XBTC2008/status/1853341548400033837):

As we approach the end of 2024, blockchain payments have suddenly accelerated:

On September 26, BlackRock partnered with Ethena to issue the US dollar stablecoin USDb.

On October 3, PayPal collaborated with Ernst & Young to complete the first commercial remittance using its self-issued PYUSD stablecoin.

On October 3, VISA announced the VTAP platform to help institutions self-issue and operate stablecoins.

On October 3, SWIFT announced that it would begin experiments with digital currencies and digital asset trading in 2025.

On October 16, internet payment giant Stripe announced a partnership with Paxos to support stablecoin payments.

In these shocking developments, I see top financial giants: "BlackRock," "PayPal," "VISA," "SWIFT," "Stripe."

All these top financial giants are what Satoshi Nakamoto hoped to avoid and discard in the white paper.

However, the latest developments have brought these giants back into the fold.

Are they here to cooperate? They are fundamentally here to seize territory. If this continues, the final outcome will surely be "the crow occupying the magpie's nest," and they will transform from current "partners" into the ultimate leaders.

Based on this progress, I immediately think of a scenario that is likely to occur in the future:

With a command from the U.S. government, all these giants could overnight freeze XXX's accounts and blacklist XXX's addresses.

The only solution to this would be to obediently submit to regulatory oversight—was this what Satoshi Nakamoto and all those predecessors worked tirelessly to achieve?

This is what I emphasized in that article: "blockchain payments" will encounter unimaginable obstacles from regulation.

From another perspective, looking at the above "developments," what can we, as retail investors, gain from this?

Can we hold shares in those cooperative projects? Or can we achieve investment returns far exceeding those of the financial market?

I see none.

This is similar to the example I once gave about Tencent: we all rely on WeChat, but what economic benefits do we retail investors gain from WeChat's explosion?

Tencent's stock price may soar, but it has nothing to do with us, yet our lives have changed dramatically because of WeChat.

But what about the "blockchain payments" mentioned above?

Its essence is still payment anchored to fiat currency, a fiat application dressed in "cryptocurrency assets." Compared to fiat payments, I see no essential difference.

Therefore, I even feel that this so-called "blockchain payments" is of even less significance to us retail investors than Tencent.

Rather than seeing these large institutions entering the "blockchain payments" space, I would prefer to see them purchase Bitcoin and Ethereum—this can directly drive up coin prices.

This is what is closely related to the interests of retail investors and is worth our attention.

I truly do not find such "blockchain payment" applications exciting.

If I had to say what I look forward to in this application?

I thought about it, and it does allow more people to recognize and understand cryptocurrency assets, which is certainly beneficial; additionally, it will attract more users, among whom there may emerge teams capable of creating truly native blockchain applications.

But these are things that I consider to be a natural outcome, not an accident, and certainly not a surprise.

I am not denying this application—blockchain public chains are decentralized platforms where all users, whether retail investors, geeks, or institutions, have the right to create their own things on this open platform.

I just do not feel that this application is particularly stunning or something to look forward to—I believe the most refined, creative, and disruptive elements in this platform and ecosystem are not this application.

My feelings about "blockchain payments" are very similar to my feelings about RWA.

Both seem to have great "prospects," but the ones truly driving and benefiting from this "prospect" are traditional financial giants, who stand to gain the most.

However, this "prospect" has little to do with retail investors, so I do not pay much attention to such "blockchain payment" applications.