The cryptocurrency drumbeat continues to build. Coinbase has gone public. PayPal and Venmo allow customers to buy, sell and store cryptocurrencies. Tesla lets consumers use bitcoin to buy its car. But to reach an eCommerce ecosystem that rivals the actual Internet in scale and reach, Circle CEO Jeremy Allaire told Karen Webster, requires cutting out the “stutter step” inherent in crypto transactions.
It may sound like a TikTok dance craze, that stutter step — but it’s a nod to the inefficiencies inherent in backend processes behind the scenes after users brandish their digital wallets and choose bitcoin or digital dollars (such as Circle’s own USDC) upon checkout. The process of accepting and settling digital currency transactions takes time, adds costs and keeps FinTechs and other digital-native firms from developing new apps that can give a tailwind to crypto payments.
“More and more end-users, more and more consumers are going to store value in digital currency,” Allaire said.
Using blockchain to facilitate those payments takes some of the steps out of the equation and eliminates the need to convert digital currencies into traditional fiat to get transactions settled. The recent announcement that Visa will settle payments with USDC stablecoins, using the Ethereum blockchain, marks a turning point in the development of the eCommerce ecosystem, said Allaire (as well as validation of USDCs themselves.
Digging a bit deeper, he said, issuers don’t have to take the consumers’ electronically stored value, convert it and use the legacy banking system to move the funds.
Visa, he noted, coordinates obligations among issuers and acquirers and keeps track of them — literally “settling up” at the end of the day, typically through wires of ACH transfers. And in crypto transactions done the typical way to date, crypto treasury reserves — at FinTechs and other companies — are converted into fiat, with additional fees attached.
“Now,” he said of those stakeholders that connect to the USDC standard and the Ethereum blockchain, allowing Crypto.com to settle its obligations its Visa card program in USDC, “they can just take what is in a digital wallet and move it right over to Visa straight away,” he explained. Initially, the first waves of implementation will focus on intraday settlement, in batch processes, but ultimately, settlement will be done in near real time.
Building A New (Layered) Ecosystem
Eliminating the stutter step, and replacing the digital-into-fiat conversion, said Allaire, helps give rise to a new network ecosystem — one that acknowledges that dollar digital currencies, and specifically, stablecoins, are core currencies that sit alongside fiat currency in its traditional form. The ecosystem is taking shape in layers, said Allaire, built with blockchain as the base layer to support the digital currencies.
We’re in the third wave of blockchain development, he said, that will support new phases of consumer products — chiefly financial products such as digital wallets and payment apps. Blockchain networks, he said, can be thought of as general-purpose infrastructures that perform functions such as tamper-proof, record-keeping systems and allow people to write code that can perform business logic, to be used in new applications.
On top of the blockchains, regulated digital currencies (pegged to units of exchange) can flow freely as consumers transact and use a wallet to transact at a Visa point of sale. At a high level, he said, the currencies are bridging the gap between crypto and fiat and fostering a decentralized market structure that stands in stark contrast to traditional payments models that are massed around centralized clearing functions.
“Because of the open standards, anyone can connect to the ecosystem, and so can any firm that connects to a blockchain,” said Allaire. That connectivity is redolent of the World Wide Web, where anyone can conceivably connect to anyone.
“That could be any wallet in the world. That could be any exchange, any custodian, any savings and lending product any financial institution,” said Allaire. The private sector is driving innovation in the cryptocurrency space and firms like Circle are working hand in hand with regulators to make sure standardized processes and security are part of the burgeoning network.
That open ecosystem, without centralized clearing, will support “web scale” usage that will bring applications to hundreds of millions of people, handling massive amounts of traffic — essentially, and eventually, replacing some of the activity seen over the SWIFT system, replacing the ACH rails with pure internet rails and pure digital currency rails.
He predicted stablecoins such as USDC (with $12.4 billion in circulation) are good for use as mediums of exchange, tied as they are to dollars and trusted as a trusted, regulatory compliant standard.
“It’s a completely new [peer-to-peer] system that is being built by the ground up,” he said. “And some of these blockchains are going to enable things like USDC to scale to hundreds of millions of users. They’re also going to enable [a] decentralized version of Twitter — not run by a company, but just run on these public networks.”
We’re not likely to see a wholesale jump to decentralized finance just yet, he said, so it’s important to note that the blockchain-based ecosystem also is interoperable with current and traditional rails that support commerce between billions of users with in-place credentials and tens of millions of merchants. Connecting that credential system and settlement network with all those existing businesses is a powerful form of interoperability and distribution between those worlds.
“We’re moving closer towards a world where payments and settlements can rely on things like USDC and stablecoins and blockchains in the same way that we’ve relied on crusty, creaky legacy payment rails,” he told Webster.
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