Blockchain has many champions, but are any close to mainstream use?
When cutting through the noise generated by the highs and lows of cryptocurrency value, the underlying blockchain technology is poised to keep advancing toward mainstream payments.
Blockchain — the distributed ledger technology originally designed for bitcoin payments — underpins many ongoing efforts to streamline payments and reduce cost. But it doesn't always live up to the promise.
"Blockchain technology currently is slow and not mature, but when it becomes fast and more efficient, it will disrupt the current banking industry," said Garbiel Wang, analyst with Aite Group. "At that time, banks that were slow to wake up to blockchain will be asking why they didn't adopt this earlier."
Recent developments include JPMorgan developing its JPM Coin to operate on the bank's blockchain as well as Square touting its creation of a crypto team to further research and advance cryptocurrency and blockchain potential.
Square CEO Jack Dorsey has invested in the Lightning Network, a new blockchain initiative operating on the promise to improve the technology's speed and capabilities — thus, the scale of cryptocurrencies.
Facebook has hired blockchain experts, reportedly with the strategy of developing its own cryptocurrency, but also for the technology's ability to potentially stabilize some of the privacy and access issues for which Facebook and other social media channels have been receiving bad publicity.
But JPM Coin is the one undergoing actual testing now for payments in JPMorgan's wholesale division.
"I was happy with JPM Coin because it validates the blockchain, but it is different because it is payments between institutions," said Sushil Prabhu, CEO of OpenCrowd, which creates blockchain solutions for its global investment-bank clients and startups. "But it is very encouraging that JPMorgan did that, because if they are doing it as a pilot, others will watch and see where it can go from here."
The path for JPM Coin will be of special interest to the bank's competitors, namely blockchain provider Ripple and other traditional financial institutions still determining how far to go with their own blockchain projects.
At its core, blockchain relies on decentralization, or making the transactions on the ledger available and documented on thousands of nodes or machines within a network.
Because of that setup, blockchain will ultimately have many different use cases, but payments certainly represent a big one in any discussion on blockchain potential. Under blockchain, a person making a payment to someone else would have that transaction entered into the network, transmitting it to all of the other nodes.
"Blockchain cryptographically confirms that the payment came from person A to pay person B and it is accepted by all nodes, or it does not become part of the system," Prabhu explained.
That type of certainty will fuel the growth of payments on the blockchain, Prabhu said.
"Cryptocurrency has a bad name, and it is said there is no asset behind it, but I think micropayments will prove that wrong and establish an actual use for it and blockchain," he added.
With micropayments, a person can pay a blogger or adviser on the Internet with a fraction of a cent to have access to read an article or ask questions. Micropayments made through a blockchain would operate almost in the same manner as an instant P2P payment, Prabhu added.
Because blockchain provides the platform for micropayments doesn't mean banks couldn't possibly offer that option, Aite's Wang said. "Banks have the technology to do it, but they just couldn't make any money from it, and banks are looking at new business for profits."
On the other hand, blockchain providers can be looking at micropayments as a first step because they are not able to penetrate mainstream payments adoption yet, Wang added. "Or it could be a result of wanting to serve these underbanked consumers or trying to help people get paid when they are not able to do so through current technology," he added.
Another movement for blockchain is coming through the Brave browser, which blocks all ads so a user can get to content quickly — but provides the ability to pay for the content a user enjoys. There is also a twist for those who want to view an ad, as the ad publisher would pay a user to do so through a Basic Attention Token — the name given for the micropayment setup to view advertisements.
"The Brave browser is fantastic and it is the start of something new in that it shows how micropayments will be used," Prabhu said. "You can buy or sell tokens, and it's just the start of a new ecosystem being built."
Younger consumers are already making similar types of payments through video game platforms and consoles, and it won't be long before that generation is "spending real money out there," Prabhu said. "That generation is going to be more likely to make larger payments with crypto and blockchain."
With that in mind, it may take some time, but eventually consumers will make payments through blockchain and "use it day-to-day like they now use credit cards," Prabhu predicts.