International currency exchange blockchain application survey


Since the introduction of Bitcoin, many alternative cryptocurrency and blockchain solutions have appeared on the market. The blockchain technology has gone through a major evolutionary step, and it will pave the way for a more global interconnection solution in the next few years. This article will start from the initial design use of blockchain-international exchange, and try to comprehensively introduce and analyze the cases and applications of blockchain in international exchange.

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Report
Introduction to Blockchain Development

The first generation of blockchain technology

Bitcoin is the first digital currency to solve the double payment problem (Note 1). It does not require a trusted authority or centralized server. Later, the concept of blockchain was separated from its realization function in Bitcoin. Blockchain has the function of acting as a distributed ledger, tracking and recording ownership exchanges, which makes it in addition to digital currency, this basic technology also has a wider range of application scenarios. Bitcoin's design inspired other applications and played a vital role as a relatively large-scale proof of concept. Due to its scalability limitations and slow processing speed, Bitcoin has great shortcomings from the perspective of the payment network, but as a groundbreaking application, this is a revolutionary breakthrough.

Note 1: Double payment is a concept of digital currency failure mode, that is, the same digital currency can be spent more than twice.

The second generation of blockchain technology

In just a few years, the second generation of blockchain technology came into being. The second-generation blockchain is a network on which developers can build applications. The most typical application is the Ethereum platform. Ethereum is a distributed computing platform based on an open source public blockchain with smart contract functions. Ethereum provides a foundation layer in the form of a built-in Turing complete programming language, which facilitates the creation of any application. Any user can write smart contracts and decentralized applications with custom specifications, formats and rules.

Ethereum provides a decentralized virtual machine that can execute computer programs using a global network of nodes. Vitalik Buterin introduced Ethereum in a 2013 white paper, with the goal of building distributed applications. The platform went live only two years later. Ethereum has attracted a large and dedicated community of supporters, developers, and businesses. The contribution of Ethereum as the second-generation blockchain is to extend the capabilities of the technology from the original Bitcoin-supporting database to more general platforms for running decentralized applications and smart contracts.

As of 2019, Ethereum is the largest and most popular platform for building distributed applications. Everything from social networks to financial applications exists on the Ethereum platform. The development of blockchain technology is moving towards the development of a global distributed cloud computing platform, on which any application can run at the scale and speed of today's major websites.

The third generation of blockchain technology

Current technology still faces major scalability issues related to throughput and processing speed. Solving these issues is the core of the third-generation blockchain technology and a necessary condition for large-scale applications such as international exchange. The high energy consumption during mining (Note 2) cannot be adopted on a large scale. Ethereum requires each node to store all smart contracts publicly on the blockchain. The ever-growing data link will slowly reduce the performance and speed of the platform. In response to these problems, many technologies have entered the stage with potential solutions.

Note 2: Mining is the nickname for the exploration method for obtaining digital currencies such as Bitcoin. Because its working principle is very similar to mining minerals, it got its name. In addition, Bitcoin prospectors who conduct mining work are also called miners.

Lightning Network

The Lightning Network is an off-chain method to solve the scalability problem of Bitcoin. For small payments, the transaction fee of Bitcoin may be greater than the transaction amount. The Lightning Network solves this problem by establishing a payment channel between the two parties. When setting up a shared channel, the Lightning Network will use a multi-signature address and a Bitcoin buffer. The channel contains a balance sheet, which is updated and signed every time they want to make a transaction, without involving the blockchain. Both entities can close the channel at any time by broadcasting only the last signed balance sheet to the Bitcoin network, which will release funds accordingly. They can limit each transaction to two, instead of making one bitcoin transaction for each small purchase, they can open the channel once and close the channel once. Only the latest signed balance sheet can be used to unlock funds. The system does not require direct payment channels between parties. If these channels have been established, payments can be made between intermediate products. Therefore, the Lightning Network attempts to minimize the complexity of the network in order to minimize the number of channels and intermediate devices required to conduct these transactions. At present, in the 20 months since the Lightning Network went online, there are now a total of 32,000 channels, 4,800 nodes with active channels, and a total capacity of 8.6 million U.S. dollars.

Altcoins-RIPPLE XRP and Stellar Lumen XLM

The alternative currency launched after the success of Bitcoin is called Altcoins. Stellar Lumen XLM and Ripple XRP are two trending cryptocurrencies, both of which aim to become the future of the banking industry. Both of them provide fast cross-border transactions at very low fees. These services will eventually be integrated into more banking systems and will act as currency interfaces between banks, companies and personnel. Ripple mainly focuses on the relationship between banks, so it has gained the trust of many companies and banks. The founder of Ripple left the company in 2014 and then continued to develop Stellar as a branch of Ripple. Stellar is a fully decentralized, non-profit branch of Ripple with a vetted consensus algorithm. Stellar's main goal is micropayments, and it also provides services that are free to use. Unlike Ripple, Stellar charges banks for the use of the platform. Ripple is semi-decentralized because it is managed by the company and has a CEO. Ripple's market value currently far exceeds Stellar. However, XRP is not all of Ripple's applications. Its application in international exchange, xCurrent, will be described in detail later.

Scalability

To solve the broader application scenarios of international exchange, scalability and throughput is an unavoidable issue to be discussed. A key aspect of scalability is to reach a consensus on which transactions are valid and trustworthy, and when to officially put these transactions on the blockchain. Taking Bitcoin as an example, the transaction can be valid on the blockchain, but if the transaction is unlikely to be on the chain under the majority consensus, the transaction cannot be counted. As far as Bitcoin is concerned, transaction confirmation may take more than an hour to be fully confirmed, and this transaction speed is undoubtedly far from enough in large-scale applications.

Consensus algorithms have a huge impact on the speed, scalability and sustainability of blockchain technology. In theory, broadcasting each transaction to the network requires a communication link between each node in the network. Although these systems do their best to broadcast, they are similar to having n*(n-1)/2 communication lines. This solution is neither feasible nor scalable. With O(n^2) complexity, even if there are only 10,000 users, the network must maintain approximately 100 million links to update everyone’s information in real time. However, in reality, all nodes will not keep in touch with every other node, reducing the number of necessary communication links at the cost of information transparency and time for consensus.

The scalability of blockchain technology can be divided into several categories, the most important of which are:

Transaction volume per second network bandwidth usage data storage

The ideal blockchain technology has the largest transaction throughput, the smallest network bandwidth usage, and requires as little storage as possible.

However, the specific characteristics of these technologies cancel each other out and influence each other. In a solution where all nodes are communicating and keeping real-time updates, network bandwidth can be an issue. In addition, the current public blockchain consensus protocol inherently faces a major scalability limitation. Due to the distributed nature of the system, all nodes need to verify and process each transaction. Therefore, the transaction throughput per second is limited by the transaction processing capacity of each individual node in the network. As more nodes are added to the network, the distributed infrastructure will also weaken, because the inter-node delay increases logarithmically as each other node increases. In addition, each node must also track the entire state of the system, including the entire blockchain, which is not very sustainable in terms of scalability.

Pain points in the international exchange industry

There is a clear trade-off between decentralization and transaction processing throughput. According to Manny Trillo, senior vice president of network processing at VISA, VISA is currently capable of processing at least 56,000 transactions per second. Bitcoin blocks also have a maximum size of 1MB, which limits the upper transaction throughput to approximately 7 transactions per second, which is quite far from VISA's 56,000 transactions per second. Ethereum's gas (Note 3) limit limits block size in a similar way to Bitcoin's 1 MB limit. The difference is that Ethereum's gas limit is dynamically set by miners, while Bitcoin's block size limit is hard-coded into the protocol. With the current 8 million gas limit and an average use of 21K gas per transaction, the average number of transactions per block is slightly less than 400. 1 block can generate up to 20 transactions per second, but this shows that more complex transactions are like smart contracts, and the more realistic number is about 10 transactions per second. In theory, a distributed consensus mechanism can provide some key benefits, such as a firm guarantee of security, fault tolerance, authenticity, and political neutrality, but this comes at the cost of scalability. The number of transactions processed by the blockchain must not exceed the number of transactions of a single participating node in the network. The technology available today is not enough to replace the current comprehensive currency centralized system with a distributed blockchain system.

Note 3: Gas is a unit used to measure the amount of calculation required to perform certain operations.

The scalability limitations mentioned above will also restrict access to these blockchain technologies to a limited number of users with sufficient storage and computing power. If these systems can indeed work on a global scale, the specifications required to become part of the network will be far beyond the expected range of personal computers. The resilience of Bitcoin depends on the distribution and independence of validators. As of July 2017, six mining institutions represent the majority (nearly 60%) of the hash power in the network. Therefore, when the security of the entire Bitcoin network depends on six companies, consensus cannot be reached and cannot be ensured by mining capabilities alone. Another scalability issue is the large energy consumption associated with proof of work done by certain blockchain technologies (such as Bitcoin). As mentioned in the section on Bitcoin, the difficulty of the puzzle depends only on the computing power of the miners, so the collective system is actually a good example of the tragedy of the commons. For each new CPU added to the mining pool, the puzzle must be slightly more difficult to maintain the average block mining frequency at once every 10 minutes. The huge amount of energy invested in the Bitcoin system has one purpose, which is to maintain decentralization.

Summary of exchange service providers

The current average cost of global remittances of more than US$200 is about 7%. According to data from the World Bank, the entire market consists of a total liquidity of US$689 billion, which means that approximately US$48 billion is directly transferred from remittances through fees, intermediaries and financial institutions (US$48 billion per year). In addition, 80% of the total funds in the remittance market come from emerging economies.

Not only is the user cost high, it also requires a bank account, and an intermediary (at least three third parties are involved in each remittance transaction), and the transaction time is still too high. If done through the conventional banking system, international currency exchange is a slow and expensive process. Or, paying directly with a foreign visa card will result in the visa's own exchange rate plus the unavoidable 2.0% conversion fee. Using convenient dedicated currency exchange and mailing services like Forex or Western Union will be more expensive because they charge about 5-10% of fees.

The ideal way to exchange funds across currencies is to exchange with the opposite party. If such a transaction is to be carried out, the two parties will meet in person, agree on an appropriate exchange rate, and exchange funds without charging any fees or transaction costs. Without proper channels for contacting legal persons for transactions, we will not be able to use traditional banking services. The banks' excellent distribution channels, reliability and availability make them the most popular services today. Banks provide a variety of options to meet the different needs of currency exchange:

Direct cash exchange at a bank branch, international bank transfer, open a currency account at a local bank

Currency banks such as Western Union and Forex are the first point and are by far the most expensive alternative. They can also provide a large number of currency services in convenient tourist locations such as airports and city centers. A currency account is also an expensive option, and it cannot be connected to the card. Only major banks offer this option, and each transaction charges high fees.

For people who plan to stay longer in another country/region, creating a bank account in that country/region is financially reasonable compared to just using a debit/credit card. International bank transfer can be a convenient way to fill in a new bank account. International bank transfer is one of the services that banks have recently experienced competition from companies such as Transferwise, WeSwap and Currency Fair. These traditional solutions all provide much cheaper international currency exchange rates than banks, but their concepts are slightly different.

Traditional solution

Transferwise Among non-bank international currency exchange services, Transferwise may be the most popular service. Since 2011, Transferwise has made transfers with famous investors in the team such as Richard Branson and Peter Thiel. Their concept is based on using accounts with large buffers in each country or region, and never actually transfer the amount, but instead receive money in one currency and pay in another currency. They use the official mid-market exchange rate without any price increase. When many people use the service, they even cancel each other statistically. In this way, Transferwise can eliminate transaction fees and charge a fee smaller than the bank (about 1%) for the trouble. The solution is simple and can be used as a Web application.

Currency FairCurrency Fair has the same model as the stock market. People can set a bid for the currency and wait for someone to accept it. Therefore, users can set their own exchange rate, Currency FairSince the introduction of Bitcoin, many alternative cryptocurrency and blockchain solutions have appeared on the market. The blockchain technology has gone through a major evolutionary step, and it will pave the way for a more global interconnection solution in the next few years. This article will start from the initial design use of blockchain-international exchange, and try to comprehensively introduce and analyze the cases and applications of blockchain in international exchange.

Report

Introduction to Blockchain Development

The first generation of blockchain technology

Bitcoin is the first digital currency to solve the double payment problem (Note 1). It does not require a trusted authority or centralized server. Later, the concept of blockchain was separated from its realization function in Bitcoin. Blockchain has the function of acting as a distributed ledger, tracking and recording ownership exchanges, which makes it in addition to digital currency, this basic technology also has a wider range of application scenarios. Bitcoin's design inspired other applications and played a vital role as a relatively large-scale proof of concept. Due to its scalability limitations and slow processing speed, Bitcoin has great shortcomings from the perspective of the payment network, but as a groundbreaking application, this is a revolutionary breakthrough.

Note 1: Double payment is a concept of digital currency failure mode, that is, the same digital currency can be spent more than twice.

The second generation of blockchain technology

In just a few years, the second generation of blockchain technology came into being. The second-generation blockchain is a network on which developers can build applications. The most typical application is the Ethereum platform. Ethereum is a distributed computing platform based on an open source public blockchain with smart contract functions. Ethereum provides a foundation layer in the form of a built-in Turing complete programming language, which facilitates the creation of any application. Any user can write smart contracts and decentralized applications with custom specifications, formats and rules.

Ethereum provides a decentralized virtual machine that can execute computer programs using a global network of nodes. Vitalik Buterin introduced Ethereum in a 2013 white paper, with the goal of building distributed applications. The platform went live only two years later. Ethereum has attracted a large and dedicated community of supporters, developers, and businesses. The contribution of Ethereum as the second-generation blockchain is to extend the capabilities of the technology from the original Bitcoin-supporting database to more general platforms for running decentralized applications and smart contracts.

As of 2019, Ethereum is the largest and most popular platform for building distributed applications. Everything from social networks to financial applications exists on the Ethereum platform. The development of blockchain technology is moving towards the development of a global distributed cloud computing platform, on which any application can run at the scale and speed of today's major websites.

The third generation of blockchain technology

Current technology still faces major scalability issues related to throughput and processing speed. Solving these issues is the core of the third-generation blockchain technology and a necessary condition for large-scale applications such as international exchange. The high energy consumption during mining (Note 2) cannot be adopted on a large scale. Ethereum requires each node to store all smart contracts publicly on the blockchain. The ever-growing data link will slowly reduce the performance and speed of the platform. In response to these problems, many technologies have entered the stage with potential solutions.

Note 2: Mining is the nickname for the exploration method for obtaining digital currencies such as Bitcoin. Because its working principle is very similar to mining minerals, it got its name. In addition, Bitcoin prospectors who conduct mining work are also called miners.

Lightning Network

The Lightning Network is an off-chain method to solve the scalability problem of Bitcoin. For small payments, the transaction fee of Bitcoin may be greater than the transaction amount. The Lightning Network solves this problem by establishing a payment channel between the two parties. When setting up a shared channel, the Lightning Network will use a multi-signature address and a Bitcoin buffer. The channel contains a balance sheet, which is updated and signed every time they want to make a transaction, without involving the blockchain. Both entities can close the channel at any time by broadcasting only the last signed balance sheet to the Bitcoin network, which will release funds accordingly. They can limit each transaction to two, instead of making one bitcoin transaction for each small purchase, they can open the channel once and close the channel once. Only the latest signed balance sheet can be used to unlock funds. The system does not require direct payment channels between parties. If these channels have been established, payments can be made between intermediate products. Therefore, the Lightning Network attempts to minimize the complexity of the network in order to minimize the number of channels and intermediate devices required to conduct these transactions. At present, in the 20 months since the Lightning Network went online, there are now a total of 32,000 channels, 4,800 nodes with active channels, and a total capacity of 8.6 million U.S. dollars.

Altcoins-RIPPLE XRP and Stellar Lumen XLM

The alternative currency launched after the success of Bitcoin is called Altcoins. Stellar Lumen XLM and Ripple XRP are two trending cryptocurrencies, both of which aim to become the future of the banking industry. Both of them provide fast cross-border transactions at very low fees. These services will eventually be integrated into more banking systems and will act as currency interfaces between banks, companies and personnel. Ripple mainly focuses on the relationship between banks, so it has gained the trust of many companies and banks. The founder of Ripple left the company in 2014 and then continued to develop Stellar as a branch of Ripple. Stellar is a fully decentralized, non-profit branch of Ripple with a vetted consensus algorithm. Stellar's main goal is micropayments, and it also provides services that are free to use. Unlike Ripple, Stellar charges banks for the use of the platform. Ripple is semi-decentralized because it is managed by the company and has a CEO. Ripple's market value currently far exceeds Stellar. However, XRP is not all of Ripple's applications. Its application in international exchange, xCurrent, will be described in detail later.

Scalability

To solve the broader application scenarios of international exchange, scalability and throughput is an unavoidable issue to be discussed. A key aspect of scalability is to reach a consensus on which transactions are valid and trustworthy, and when to officially put these transactions on the blockchain. Taking Bitcoin as an example, the transaction can be valid on the blockchain, but if the transaction is unlikely to be on the chain under the majority consensus, the transaction cannot be counted. As far as Bitcoin is concerned, transaction confirmation may take more than an hour to be fully confirmed, and this transaction speed is undoubtedly far from enough in large-scale applications.

Consensus algorithms have a huge impact on the speed, scalability and sustainability of blockchain technology. In theory, broadcasting each transaction to the network requires a communication link between each node in the network. Although these systems do their best to broadcast, they are similar to having n*(n-1)/2 communication lines. This solution is neither feasible nor scalable. With O(n^2) complexity, even if there are only 10,000 users, the network must maintain approximately 100 million links to update everyone’s information in real time. However, in reality, all nodes will not keep in touch with every other node, reducing the number of necessary communication links at the cost of information transparency and time for consensus.

The scalability of blockchain technology can be divided into several categories, the most important of which are:

Transaction volume per second network bandwidth usage data storage

The ideal blockchain technology has the largest transaction throughput, the smallest network bandwidth usage, and requires as little storage as possible.

However, the specific characteristics of these technologies cancel each other out and influence each other. In a solution where all nodes are communicating and keeping real-time updates, network bandwidth can be an issue. In addition, the current public blockchain consensus protocol inherently faces a major scalability limitation. Due to the distributed nature of the system, all nodes need to verify and process each transaction. Therefore, the transaction throughput per second is limited by the transaction processing capacity of each individual node in the network. As more nodes are added to the network, the distributed infrastructure will also weaken, because the inter-node delay increases logarithmically as each other node increases. In addition, each node must also track the entire state of the system, including the entire blockchain, which is not very sustainable in terms of scalability.

Pain points in the international exchange industry

There is a clear trade-off between decentralization and transaction processing throughput. According to Manny Trillo, senior vice president of network processing at VISA, VISA is currently capable of processing at least 56,000 transactions per second. Bitcoin blocks also have a maximum size of 1MB, which limits the upper transaction throughput to approximately 7 transactions per second, which is quite far from VISA's 56,000 transactions per second. Ethereum's gas (Note 3) limit limits block size in a similar way to Bitcoin's 1 MB limit. The difference is that Ethereum's gas limit is dynamically set by miners, while Bitcoin's block size limit is hard-coded into the protocol. With the current 8 million gas limit and an average use of 21K gas per transaction, the average number of transactions per block is slightly less than 400. 1 block can generate up to 20 transactions per second, but this shows that more complex transactions are like smart contracts, and the more realistic number is about 10 transactions per second. In theory, a distributed consensus mechanism can provide some key benefits, such as a firm guarantee of security, fault tolerance, authenticity, and political neutrality, but this comes at the cost of scalability. The number of transactions processed by the blockchain must not exceed the number of transactions of a single participating node in the network. The technology available today is not enough to replace the current comprehensive currency centralized system with a distributed blockchain system.

Note 3: Gas is a unit used to measure the amount of calculation required to perform certain operations.

The scalability limitations mentioned above will also restrict access to these blockchain technologies to a limited number of users with sufficient storage and computing power. If these systems can indeed work on a global scale, the specifications required to become part of the network will be far beyond the expected range of personal computers. The resilience of Bitcoin depends on the distribution and independence of validators. As of July 2017, six mining institutions represent the majority (nearly 60%) of the hash power in the network. Therefore, when the security of the entire Bitcoin network depends on six companies, consensus cannot be reached and cannot be ensured by mining capabilities alone. Another scalability issue is the large energy consumption associated with proof of work done by certain blockchain technologies (such as Bitcoin). As mentioned in the section on Bitcoin, the difficulty of the puzzle depends only on the computing power of the miners, so the collective system is actually a good example of the tragedy of the commons. For each new CPU added to the mining pool, the puzzle must be slightly more difficult to maintain the average block mining frequency at once every 10 minutes. The huge amount of energy invested in the Bitcoin system has one purpose, which is to maintain decentralization.

Summary of exchange service providers

The current average cost of global remittances of more than US$200 is about 7%. According to data from the World Bank, the entire market consists of a total liquidity of US$689 billion, which means that approximately US$48 billion is directly transferred from remittances through fees, intermediaries and financial institutions (US$48 billion per year). In addition, 80% of the total funds in the remittance market come from emerging economies.

Not only is the user cost high, it also requires a bank account, and an intermediary (at least three third parties are involved in each remittance transaction), and the transaction time is still too high. If done through the conventional banking system, international currency exchange is a slow and expensive process. Or, paying directly with a foreign visa card will result in the visa's own exchange rate plus the unavoidable 2.0% conversion fee. Using convenient dedicated currency exchange and mailing services like Forex or Western Union will be more expensive because they charge about 5-10% of fees.

The ideal way to exchange funds across currencies is to exchange with the opposite party. If such a transaction is to be carried out, the two parties will meet in person, agree on an appropriate exchange rate, and exchange funds without charging any fees or transaction costs. Without proper channels for contacting legal persons for transactions, we will not be able to use traditional banking services. The banks' excellent distribution channels, reliability and availability make them the most popular services today. Banks provide a variety of options to meet the different needs of currency exchange:

Direct cash exchange at a bank branch, international bank transfer, open a currency account at a local bank

Currency banks such as Western Union and Forex are the first point and are by far the most expensive alternative. They can also provide a large number of currency services in convenient tourist locations such as airports and city centers. A currency account is also an expensive option, and it cannot be connected to the card. Only major banks offer this option, and each transaction charges high fees.

For people who plan to stay longer in another country/region, creating a bank account in that country/region is financially reasonable compared to just using a debit/credit card. International bank transfer can be a convenient way to fill in a new bank account. International bank transfer is one of the services that banks have recently experienced competition from companies such as Transferwise, WeSwap and Currency Fair. These traditional solutions all provide much cheaper international currency exchange rates than banks, but their concepts are slightly different.

Traditional solution

Transferwise Among non-bank international currency exchange services, Transferwise may be the most popular service. Since 2011, Transferwise has made transfers with famous investors in the team such as Richard Branson and Peter Thiel. Their concept is based on using accounts with large buffers in each country or region, and never actually transfer the amount, but instead receive money in one currency and pay in another currency. They use the official mid-market exchange rate without any price increase. When many people use the service, they even cancel each other statistically. In this way, Transferwise can eliminate transaction fees and charge a fee smaller than the bank (about 1%) for the trouble. The solution is simple and can be used as a Web application.

Currency FairCurrency Fair has the same model as the stock market. People can set a bid for the currency and wait for someone to accept it. Therefore, users can set their own exchange rate, Currency Fair0.15% of the total amount is charged. If no one goes there to exchange, Currency Fair will also initiate the exchange itself, with a fixed fee of $3 and a hidden exchange spread of 0.9%. Therefore, Currency Fair allows customers to freely set a given exchange rate, wait for someone to accept it, or immediately sell it to Currency Fair at a slightly higher fee, but it is not the same as the fee charged by the bank.

WeSwapWeSwap provides customers with a Mastercard, they can recharge their national currency. Later, customers can conduct currency transactions internally with other WeSwap customers who have opposite needs. Transaction fees vary between 1% and 2%, depending on the urgency of the transaction. This service is suitable for users who do not want to use their primary personal card for currency exchange, or users who do not have a bank account in a second currency.

SWIFTSWIFT stands for "Global Interbank Financial Telecommunications Association". It is a global network of financial organizations used to exchange financial transaction information and can be understood as a communication medium for all banks and financial institutions. All users in the network have a service identifier code or SWIFT code for communication.

The platform was established in 1973 by a Belgian company called Telecommunications. Today, most banks use this network to maintain and trade global interbank currencies. The network provided by SWIFT enables financial institutions to send and receive information about financial transactions in a safe, standardized and reliable environment. Most banks use the SWIFT network for remittances. As of September 2010, more than 9,000 financial institutions in 209 countries around the world sent and received more than 15 million pieces of information every day, compared with 2.4 million pieces in 1995. In addition, the bank’s daily currency transaction volume is approximately US$5 trillion processed separately, most of which is processed by the exchange of messages with the SWIFT network.

SWIFT does not understand the foreign exchange part of cross-border payments, but it is a partner of the foreign exchange settlement system CLS. CLS's own members include many of the world's largest financial institutions and all their major central banks.

Blockchain solution

The xCurrentRipple company has created an open source product xCurrent, which enables peer-to-peer financial transactions between global banks. All members of RippleNet are connected through Ripple's standardized technology xCurrent. xCurrent enables banks to send messages and settle settlements with RippleNet member banks at a faster speed, greater transparency and higher efficiency. xCurrent is built around the Interledger Protocol (ILP), an open and neutral protocol, which enables interoperability between different ledgers and payment networks. The solution provides an encrypted and secure end-to-end payment process, and has transaction immutability and information redundancy. RippleNet is not a completely decentralized technology, not a standardized communication and centralized network, but a global banking network. Banks can send and receive payments through Ripple's distributed financial technology.

CircleCircle was founded in 2013 as a wallet. It became the first company in the world to obtain a BitLicense from the New York State Department of Financial Services (NYDFS) in 2015. In April 2016, Circle was awarded the first E-Money Issuer License issued by the UK's highest financial regulatory agency, the UK Financial Conduct Authority (UK Financial Conduct Authority), which can be legal in the UK and EU countries Carry out the exchange business of legal currency and digital currency.

In terms of cross-border payment, Circle is mainly to realize low-cost currency exchange and cross-border exchange with the support of blockchain technology. Users can realize transfer, collection and payment without handling fees. Circle customers have covered more than 150 countries and regions, and 70% of users are concentrated in the United States and Europe. The annual transaction volume is close to 1 billion U.S. dollars. In 2016, global customers increased by 300% year-on-year.

Comparison of SWIFT, RIPPLE, CIRCLE

SWIFT VS. RIPPLE

SWIFT

With the changes in domestic habits and demands, the introduction of real-time domestic payment systems, and the shift of local real-time total settlement systems to 24/7 settlement, the banking industry is experiencing a wave of automation.

The European Union launched the "Target Instant Payment Settlement" system (commonly known as TIPS) in November 2018; people and companies in Europe can now make instant payments in euros to each other 24/7, 365 days a year. In the United States, the Clearing House (TCH) gradually introduced 24/7/365 instant payments to individuals and companies. Banks must deal with these far-reaching changes if they are to survive. Of course, there is no doubt that SWIFT and its member banks must respond to the threat posed by cryptocurrencies if they are to survive.

SWIFT is not for nothing. Two years ago, it shocked Ripple's instant international payment product through its Global Payment Plan (GPI). SWIFT belongs to most major banks in the world among its members. They inevitably adopted GPI: within a year, 160 banks were using GPI. In response, Ripple adopted the cryptocurrency XRP as the international payment "standard" and focused on application-based retail payments through its partner banks. But now, SWIFT is also catching up to this market. SWIFT made it clear that by 2020, GPI will become the standard for all cross-border payments.

SWIFT's proposal is based on the GPI plan to establish an instant, uninterrupted, and ubiquitous international payment network. SWIFT does not believe in the value of blockchain. It plans to rely on more common technologies: core architecture, common standards and APIs.

The lack of common standards is the biggest obstacle to seamless international payments. Therefore, the transition to the open ISO 20022 standard by 2021 is a prerequisite for SWIFT's plan. SWIFT is keen on the benefits of using standards:

The importance of switching to ISO 20022 cannot be underestimated. It will enable banks to direct instant payments to the ultimate beneficiary's account directly through the domestic system across borders. It will allow smaller markets to internationalize faster and expand their reach. It will enable larger markets to move smoothly across the entire currency "stack" within their markets, including flows between banks and other payment providers, credit card companies, and local clearing houses. It will enhance competition, promote innovation and reduce industry friction. It will benefit the end customer in terms of speed, universality and choice. It will also bring huge benefits to the industry in terms of reducing the total cost of ownership, simplifying integration and efficient business processes.

Ripple System

The Ripple Protocol maintains a distributed ledger that is public throughout the network. Ripple’s “consensus mechanism” allows all nodes in the system to automatically receive updates to the transaction records of the general ledger within a few seconds. This process does not need to go through the central data processing center. This rapid processing method is the most significant technological breakthrough of the Ripple system.

Compared with the data packaging method and the transaction confirmation method, the Ripple system has two differences: First, the block packaging speed is faster. Bitcoin takes about ten minutes, while the Ripple system only takes a few seconds). The second is that the block confirmation method is faster. Bitcoin requires multiple nodes to confirm one by one, while the Ripple system confirms all nodes together at the same time. This is the "consensus mechanism" of the Ripple system. Therefore, the confirmation time of Ripple system's new transaction records only takes 3-5 seconds, while Bitcoin generally takes 40-50 minutes.

The Ripple system is a decentralized architecture, while SWIFT is a centralized architecture. The maintenance cost of a centralized system is relatively high. For example, staff salaries, server and other equipment costs, plus the necessary profitability, all of which lead to a centralized system. It is possible to achieve the "free" required by Internet finance. Ripple's decentralized architecture does not have these problems.

At the same time, the transaction ratio of the Ripple system is lower than that of SWIFT. SWIFT is a centralized structure, so cross-currency, cross-border and cross-regional operating costs and charging standards are relatively high. Any currency in the Ripple system can be freely exchanged at almost zero cost, and cross-currency transfer is very convenient. Moreover, in the Ripple system, there is no difference between remote, inter-bank, and cross-border payments, and all are close to zero cost.

The settlement speed of the Ripple system is much faster than that of SWIFT, and the transfer of the Ripple system will arrive in 5 seconds. The SWIFT international remittance takes 1-2 days.

Ripple system transactions can be anonymous, while SWIFT transactions need to confirm the identities of both parties.

The Ripple system can be used in any currency, while SWIFT can only be applied to the legal currency of various countries. As long as there is an exchange rate, any currency can be freely converted.

Conclusion

So far, the most successful application of blockchain in international exchange is Ripple's xCurrent. Ripple is also the most promising company to replace SWIFT as another giant in international exchange. According to McKinsey's report, B2B cross-border payments using blockchain can add US$50-60 billion in value to the global payment industry, which comes from reducing costs, speeding up, expanding markets, and increasing security. Unlike other functional applications, Ripple points directly to the essence, holding the most revolutionary application of blockchain, and also the biggest piece of cake in its hands. Companies that master international exchange will surely occupy the most important place in future international trade.


Comments 1


How big the article is!!!

25.03.2021 04:18
0