Cryptocurrency: Why Visa and PayPal Need to "Fully Embrace" Blockchain

Payment giants like Visa, MasterCard, and PayPal could risk losing out unless they make a big move into cryptocurrency, an analyst warned in a note shared Thursday. MoffettNathanson’s Lisa Ellis wrote in a note that, while bitcoin and other cryptocurrencies are unlikely to replace these big players anytime soon, there’s a number of situations where these newcomers could prove more useful.

“Cryptocurrency systems (e.g., Bitcoin, Ethereum, Ripple) are potentially disruptive to private payment systems,” Ellis wrote in the not seen by Bloomberg. “Their core design characteristics — which are aimed at enabling ‘freedom of money’ — are in direct contrast to the characteristics of most traditional, private payment systems.”

Ellis warned that “unless networks fully embrace these technologies themselves,” they could find themselves losing the market in use cases like international payments between businesses and people. Embracing cryptocurrency could benefit their existing structures, she explained, by enabling them to offer blockchain-based tracking for valuable items. Similar ideas have been suggested by the likes of Kodak, which uses KodakCoin to license users’ work.

The cryptocurrency market was so hyped-up in December 2017 that Long Island Ice Tea’s stock soared when it changed its name to “Long Blockchain,” but since then the market has shed nearly $700 billion in value. Bitcoin, the world’s largest cryptocurrency with a 52 percent share of the total $131 billion market at the time of writing, struggled during the surge in interest as its structure meant it could only process a few transactions globally per second. Visa, on the other hand, can process around 2,000 transactions per second.

While the hype has died down around cryptocurrency, developers have been quietly looking at ways to make it more versatile. The Lightning Network, a layer that interacts with bitcoin to make payments faster, promises to process millions of transactions every second. The SegWit standard, a data-saving technique agreed upon in August 2017, has also seen increasing adoption.

Established financial firms have expressed renewed interest in blockchain and other cryptocurrency technologies. Earlier this month, J.P. Morgan announced its successful creation of a digital coin blacked by the United States dollar. One “JPM Coin” covers one dollar held in a designated account at JPMorgan Chase N.A.. It’s a major move from the bank, whose CEO Jamie Dimon once described bitcoin as “worse than tulip bulbs,” referencing the 17th-century market hype. In October 2018, Santander announced plans to expand adoption of RippleNet in its operations.

Bitcoin’s proponents may have once considered it a way of upending the established payment systems, but the future could lie in a world where those systems embrace cryptocurrency.

The author of this story has a stake in bitcoin and Ethereum.