Blockchain Is Doing for Payments What the Web Did for Information

September 7, 2018
Updated 6mo ago

By Tanaya Macheel and Jacqueline Corba

Two years ago it was largely unthinkable that a large financial institution would touch anything related to public blockchains like those of the Bitcoin and Ethereum networks. Instead, most opted to explore "private" blockchains, which allow a select group of individuals to monitor and transact.

But blockchains are most effective if there is a network effect, and to do "anything real in the world" those firms need to connect their private blockchains to the larger public network, Jed McCaleb, Stellar CTO and co-founder of Stellar Development Foundation, told Cheddar Thursday at the Crypto Finance Conference.

"The smaller your group of people is, the more likely you should just use a database," he said.

It's similar to how companies operate on private networks that are also able to connect to the public Internet ー some files sit behind a wall, and sometimes they are sent out to an external party or organization.

"That's what Stellar gives you — a way to have your permissioned group but still interact with everyone else in the world," McCaleb said.

The corporate aversion to public blockchains is starting to turn though. Last week, IBM announced a new product for cross-wire payments powered by Stellar that will help the network get in front of IBM's larger corporate partners ー many of whom probably have ongoing private blockchain experiments running. Two years ago, all enterprise blockchain experiments focused on private networks, but it's safe to say today a quarter, or perhaps even half, of that experimentation has turned to public networks like Stellar or Ethereum (but not Bitcoin), Adam Ludwin, CEO of Chain, said anecdotally in a fireside chat with McCaleb on Thursday.

"We've obviously been focused on cross border payments for a while, but it's hard for us to engage with larger institutions that IBM has lots of relationships with. So it's a very good partnership," McCaleb said.

Chain ー which provides blockchain tech for the transfer of financial assets that has been employed by Capital One, Citigroup, Fidelity, Nasdaq, State Street, and Visa ー is rumored to be in talks with Stellar for a $500 million acquisition of the private blockchain start-up. Neither side of the potential deal has publicly addressed the rumors.

Stellar and Chain have taken different approaches to the same vision: improving cross-border payments for large financial institutions. McCaleb and Ludwin agree the dichotomy between public and private blockchains is a false one and that in the future there will be less of a divide.

"What the internet did for information, we are now doing for payments," McCaleb said.

"The benefit of blockchain is you have this public record that everyone can see, but no one can change arbitrarily, and that allows people that don't have a formal relationship with each other to transact."

For full interview click here.