Even the most devoted Bitcoin convert will admit the network is slow.
We noted in a December cover story that Visa (ticker: V) “can process 10,000 times as many transactions per second as Bitcoin’s vaunted blockchain.”
Evercore ISI analyst David Togut offered slightly different numbers in a March 26 report. “Visa can process 65,000 transaction messages per second, at full capacity, compared with fewer than 10 Bitcoin transactions per second.”
In any case, you get the idea. Blockchain transaction = slow. So far that tardiness has created a moat of molasses that protects card issuers such as Visa, Mastercard (MA) and American Express (AXP) from Bitcoin encroachment. There are some ideas on how to equip cryptocurrencies with speed, however.
Togut had some thoughts on two such suggestions at a March 22 panel hosted by Columbia Business School: “Blockchain: Recasting the Payment Industry’s Future.”
Timothy Galebach, chief technology officer of Blockmason, suggested sharding. “Currently, every single node running the Ethereum network has to process every single transaction, which is why it’s slow,” Togut wrote. “With sharding, the network is partitioned into shards where only certain nodes process transactions for certain shards, allowing for greater speed. However, fewer nodes means reduced security, and risk of centralization; problems which have yet to be addressed.”
We don’t think users would settle for less security. The other alternative was proposed by Jeff Bandman, a principal at Bandman Advisors and a former regulator at the Commodity Futures Trading Commission. “[B]usiness practices could be put in place to allow for the slower verification process of blockchain, or a hybrid payments solution could be created utilizing both card and blockchain payments,” Togut noted.
Perish the thoughts. Throughout advances in technology, users have never accommodated “slower” in their vocabulary. We refer readers to Emily Dickinson, who noted that only Death itself will wait patiently. A hybrid solution looks nice in theory, but it would still be slower than the card system alone.
In a March 6 report, Togut wrote, “We continue to believe that cryptocurrencies pose limited disintermediation risk to our payments coverage, including Mastercard, Visa and American Express.” We agree completely.
On the other hand, the Evercore analyst wrote in the earlier report that “blockchain offers long-term cost-reduction and efficiency-creation opportunities for our Bank Technology coverage, especially Fidelity National Information Services (FIS), Fiserv (FISV) and Jack Henry & Associates (JKHY), and the market share leader in U.S. proxy services, Broadridge Financial Solutions (BR), in both transaction processing and trade settlement.”
Togut also noted in the March 26 note that Bandman said “the underbanked” would benefit from cross-border blockchain transactions, as “too many intermediaries exist and transactions fees are high.” It’s telling that Western Union (WU) and MoneyGram International (MGI) have partnered with digital currency Ripple.
Speaking of ripple, that’s all cryptocurrencies can manage to make in the card moats at this point.
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