The Time for Progress is Now

David Schwartz Makes the Case for Blockchain in Payments at Money20/20 USA

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Ripple CTO David Schwartz participated in a spirited debate yesterday at Money 20/20 USA. The moderator Tony Hayes asked him and his opponent, Esther Pigg, the SVP of Product Strategy at FIS Payments, to address the question: Will Blockchain Replace Today’s Payments System?

Schwartz’s argument for the “pro” side was two-pronged. First, he explained what’s wrong with today’s global payments systems. They were built before the Internet — for the “postal and batch era” — and are not able to address market demands today. And, as an industry, he explained, “We’ve been trying to put band-aids on the problem for years now. Apple Pay, SWIFT GPI, bank’s web and mobile interfaces — these are all just short-term fixes.”

But these band-aids don’t resolve underlying issues with the infrastructure supporting global payments systems; they just won’t work for the next wave of companies and consumers. Schwartz used examples of companies like Uber and Amazon that have become payment companies. The proliferation of APIs they need to execute payouts to partners and customers is becoming a “nightmare” for them. And, in emerging markets, businesses and consumers are sometimes left without options to address their payment needs.

Schwartz explained that it’s really hard to stop technological advancement when technology is shown to dramatically improve or solve a problem. This is what blockchain is doing for cross-border payments. And, what it could do for other use cases down the road.

So, why is blockchain the ideal solution? Schwartz provided three compelling reasons:

  1. Security: Every participant can enforce all the rules, so the systems are self-defending.

  2. Reliable: The median blockchain has better reliability than YouTube. They’ve never had outages.

  3. Governance: Blockchains are governed simply by everyone participating enforcing all the rules.

To conclude his opening remarks, Schwartz provided perspective on what a transition to blockchain might look like. He said, “Look at what email did to postal mail. Look at what digital music did to CDs. And, if you look at the developing world, they skipped landlines completely. The same can be said for the developing world moving straight to mobile wallets.”

Esther Pigg’s rebuttal to these remarks hinged on a few key points, including regulatory uncertainty, scalability of blockchains and interoperability.

Schwartz did acknowledge that scalability is an area where blockchain in general still has room for growth. But for some blockchain technologies, like the XRP Ledger, it is not a big problem. The XRP Ledger already scales to 1500 transactions per second.

On interoperability, he countered by pointing out blockchains already have an interoperability protocol, known as Interledger. Interledger is similar to how Internet IP works today. It allows all blockchain ledgers to connect, regardless of what digital assets are being exchanged across them.

On regulation, Schwartz agreed that more regulation of digital assets and blockchain technology is needed to ensure consumers are protected. Japan and Abu Dhabi are strong examples of global leaders in regulation — governing bodies providing strong consumer protections around digital assets but also leaving room for innovation. He specifically pointed out how the examples Pigg offered in her argument, where digital assets are used for illicit practices, are very different than the positive use cases for digital assets, like cross-border payments, that companies like Ripple are driving.

Pigg also noted in her remarks that the industry should continue to explore how blockchain can fix problems with slow, unreliable payments. So while she wouldn’t concede that blockchain will replace payment systems, she agreed that it may play an important role.

Following the debate, a poll that showed half of the room felt the same as they did before the panel – with the rest of the audience split 50/50 on if blockchain will replace payments systems or not. It seems this topic will continue to be the center of more debates. For now, we can agree to disagree.

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