“Currently, the existing entities in the payment industry who aren’t using blockchain are fairly hesitant to adopt the technology, largely for the wrong reasons,” he says. Bitcoin’s lightning network is an example of this, it’s extremely fast and greatly cuts down bitcoin’s transaction processing times.”īut despite these technological advances, Chin said it is too early for these major companies to embrace the potential advantages provided by blockchains.
And then they’re in the middle, clearing things. “For example, Mastercard could have a state channel open with all of its customers, and a state channel open with all of its merchants. “There are many possible different implementations of this,” Chin says. Instead, individual transactions are conducted and processed via state channels – miniature blockchains powered by a small handful of the servers – with the payment information flushed back to the main blockchain when transactions are complete. While the overall blockchain still consists of many thousands of servers, second-layer protocols increase the processing speed to viable levels, as not all of these servers are required to process every single transaction. However, if the card networks are not willing to form this kind of global collaboration, the advent of second-layer payment protocols for blockchain powered networks, could provide another way in which Visa and Mastercard can revamp their systems. “This kind of technology is already being used by consortiums ranging from major food retailers to logistics providers.” “If the card companies came together to create this kind of private blockchain to handle all the transactions, it would be more reliable and payments would be cleared at lightning fast speeds,” Chin said. And because there would be a maximum of ten different servers involved in the blockchain, speed would not be a problem. This would mean that if one company’s infrastructure failed, transactions would still be processed by the servers operated by the rest of the consortium. Each company would operate one or two servers, validating and processing transactions, with transaction information shared between the members of the consortium. One option is a permissioned blockchain based on IBM’s hyperledger technology, operated by a consortium of the world’s card networks.
However, the next generation of blockchain-based solutions may actually provide a viable alternative. This trade-off between speed and reliability has long been the major dilemma of blockchain, making it impractical for major card networks. But we also wouldn’t be talking about millions of transactions per day.” “Yes, if these major networks were to run on blockchains, these thousands of nodes would have probably meant the failure didn’t happen. “It’s vastly inefficient because there’s literally tens of thousands of different servers involved,” said Michel Rauchs, a researcher at the Cambridge Centre for Alternative Finance. While Visa processes around 150 million global transactions a day - around 45,000 per second - ethereum processes approximately 15 per second.
The problem with conventional blockchains is that this decentralization comes at the expense of speed.
“Because of the redundancy in blockchains, if a single server goes down, it won’t meaningfully impact the network," said blockchain expert Michael Chin, co-founder of Blockmason.
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