Thursday, July 26, 2018
Blockchain is a foundational technology, like electricity and the internet…

Post 2 (of 3): A Blueprint Discussion on Payments Innovation

By Guest Bloggers: Thomas Hardjono, MIT Connection Science, Matt Nelson, IBM, and Pete Teigen, IBM


In our first blog post we addressed the value that blockchain can bring to addressing secure identity management. This second post explores the implications of blockchain on global currencies and payment systems.  A primary objective is to verify that payment components are uniformly examined across industries, businesses, and government agencies as they are important to maintaining integrity in blockchain technology.  Finally, the third of the three posts will report on the value that blockchain can bring to a supply chain.

New Forms of Payments

The introduction of the Bitcoin system provided a working example of a Peer-to-Peer (P2P) payment mechanism that could be used over the public Internet. Since then, many blockchain-based payment systems have been proposed, with most (if not all) lacking the means to address the crucial question around KYC/AML (Know Your Customer/Anti Money Laundering) of participants in the network.  Regulated and stable monetary flows are crucial for a dynamic economy and for the freedom for citizens to conduct day-to-day business. For new entrants into the space (e.g. Joust Bank for consumer banking), addressing regulatory requirements pertaining to identity and authentication of participants in the banking network (independent of whether it is blockchain-based or point-to-point) represents a crucial milestone in the success of such an endeavor.

Similarly, in the case of blockchain-based inter-banking payments, new alternate, low cost and more efficient schemes have been proposed (e.g. Ripple xCurrent system) that provides a secure mechanism for global payments to be routed bank-to-bank over a P2P network of blockchain nodes.

Global momentum may threaten US technological leadership

While blockchain is a global phenomenon, there are concentrations of technological leadership.  In 2017, the World Intellectual Property Organization (WIPO) reported that China, the US, and Australia were patent filing leaders for blockchain technology.  However, that early technological leadership can be discouraged and quickly destroyed, when too many obstacles exist for innovation to blossom.  Obstacles can include too much regulatory heavy-handedness as well as too little regulatory clarity.

The most patent filings for Blockchain technology to the World Intellectual Property Organization (WIPO) in 2017 came from China… over half of the 406 patents in 2017 were from China: the country filed 225 Blockchain patents, followed by the US (91), and Australia (13).

One key area that the US Government could devote resources to is the exploration of limited and controlled digital currencies at the state level or even the municipalities level. At the Federal level, the government may also investigate the possibilities of stable Central Bank Digital Currency (CBDC) and explore the cyber-infrastructure that may support the survivability and resiliency of such a CBDC.

Risk of losing blockchain technology leadership

When the seeds of innovation do not have the fertile soil in which to take root, those seed wither away or find a more suitable environment.  Though the US enjoys a technological incumbency at the moment, it is ceding application leadership to other countries. Already, China has leaped to the top as the most active filer of blockchain patent applications in 2017 aiming to claim exclusivity on the “mutual distributed ledger” in finance and other supply chains, according to the Financial Times.

Research funding needs to be allocated on the area of “crypto-economics” in the same way that DARPA funded research into the packet-switching networks of the late 1960s – which blossomed into the TCP/IP Internet of the 1980s and which fueled the first “Tech” expansion in the 1990s.  Freedom to explore and innovate is core this success.

Promote regulatory clarity

The federal government introduces some regulatory clarity for those innovating with blockchain technology.  Although overregulation risks dampening innovation, the “right” amount of regulation can reduce the risk (perceived and real) of sailing into uncharted waters.

Federal agencies responsible for the enabling innovation could help agencies develop an approach for de-risking the regulatory environment for companies wanting to experiment and innovate with blockchain technologies.

The benefits obtained through taking this action include:

  1. Signaling to the market that innovation will not be punished
  2. Encouraging the use of open sandboxes for collaborative innovation and accelerated development
  3. Broader adoption of use cases and industry standards


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