Blockchain – the edge technology of payment solutions

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William Hung, Payment Asia: “We decided to invest in blockchain in order to maintain the quality of our payment solutions and assist merchants with access to the new-era technology”

The birth of blockchain in 2008 (when Satoshi Makamoto first published his astonishing solution of The Byzantine Generals’ Problem) exhibited how proof-of-work chain could be facilitated without passing through the centralised and trusted third-parties. The speculation of bitcoin, the blockchain-backed cryptocurrency created by the enigmatic Mr. Makamoto, which came afterwards, generates an amount of wealth. When time goes by, the financial world realises, even though the boom has burst, that blockchain could be applied in wide ranges of commercial and financial transactions. The development of payment solutions is exactly part of the evolving story.


From centralised to distributed ledger

In modern business world, merchants often rely on centralised and trusted third parties, like banks, accountants, auditors and lawyers etc., to verify or record any transaction. Before the birth of the Internet, all words or figures were written or printed in black and white. In the age of the Internet, the practices are more environmental-friendly as those words or figures are electronically stored in physical or cloud servers. Still, one big problem remains: no matter in paper or electronic form, nobody can assure the third parties would not fail to perform, either technically or credibly. The Enron scandal told us even a worldwide known accountancy firm would fall down due to the destruction of its credibility. The existence of blockchain is exactly a breakthrough to tackle the issue.

Blockchain, or called distributed ledger technology (DLT), originally is the technical element that supports bitcoin to bypass centralised and trusted intermediaries and verification processes to record transactions immutably. Each ‘block’ records part of the information related to all transactions. Blocks are encrypted and arranged in order by time to form a ‘chain’. All authorised parties share the same ledger. When one party changes a record (say adding a new transaction or editing a previous transaction), a new ‘block’ containing the new information will be added at the end of the encrypted ‘chain’ in terms of timeframe to show it is the latest mark of changes. It is a shared ledger, so no single party owns it, and nobody can corrupt it (i.e. everybody will be notified for any changes).


Blockchain, payment and smart contract

Amid the speculation around bitcoin, the distributive feature of the technology is now being recognised by government watchdogs and financial institutions around the world. The US Federal Reserve issued Distributed Ledger Technology in Payment, Clearing and Settlement in December 2016 to present its extensive research on the applicability of blockchain in financial trading and payment solutions. The research paper highlights the fact that blockchain may help speed up and simplify the current slow and cumbersome cross-border payments processes. The Bank of England in The Macroeconomics of Central Bank Issued Digital Currencies examines a digital currency backed by DLT that may help reduce interest rates, distortionary taxes and transaction costs, which eventually benefit the economy. Another hot discussed blockchain-based element is smart contract, a computer program that automatically performs some actions (terms or conditions) of a contract once the pre-defined conditions are fulfilled.

Still, there are technical constraints of blockchain left to be overcome. As the Federal Reserve report notes, the number of concurrent transactions of some blockchain technologies are limited by their algorithm and cryptographic verification, and the continuous extension of blockchains may use up storage capacity quickly. Besides, the concept of smart contract, according to the Fed, may contradict with some basis in contract law, which remains to be reviewed by legal professionals.


Our investment and projection of blockchain

In the beginning, Payment Asia aims at riding on the express of China business and Asian economic boom, where the demand of payment gateways for facilitating intra and inter-regional trade is growing. It was in 1999, the era of Web 1.0.

We are now living in the Web 3.0, where the practices in the Internet are moving away from centralisation and one-way to decentralisation and interaction. As a veteran of payment solutions business, Payment Asia is now exploring the potential of DLT for merchants in different business sectors and looking forward to implementing the cryptographic and distributive technology in the latest ecommerce practices. Of course, it takes time for computer scientists and legal experts to address the storage capacity, reliability and legal concern, but once the peer-to-peer (P2P) technology is widely applied, the time and cost of intra- and international trading and transaction would be saved. It is the reason why Payment Asia decides to invest in blockchain in order to maintain the quality of our payment solutions on the edge, and ultimately assist merchants with access to the new-era technology. We envisage the day of P2P exchange of goods and services would come to our daily life soon, and the application of DLT, like cryptocurrency and smart contract, would be the key for merchants standing out from the crowd in the foreseeable future.