To better understand how cryptography works, the Investigation of the BNB chain the team draws a map of the web3 payment ecosystem

Leaving aside both philosophical questions and the independence of monetary policies from central banks or any type of intermediary, Bitcoin was born as a payment network between individuals. Payments have been a mainstay of cryptocurrencies since their inception, including pre-Bitcoin experiments such as DigiCash and BitGold, but their use, while becoming more widespread, is still not widespread. Apart from the obvious reluctance of some people towards cryptocurrencies, there are certain technical barriers that make it difficult for them to be adopted as a leading means of payment.

Today’s crypto landscape is quite different than it was in the late 2000s and has evolved by leaps and bounds, but some of the limitations inherent in a permissionless P2P network remain in place, limiting the ability to pay with cryptocurrencies. In day to day.

Before going into the limitations or trying to fix anything, it is necessary to review some concepts that make it easy to map the web3 payment ecosystem (powered by blockchain technology).

Payment can be simply defined as the exchange of an asset between two people generated by an agreed transaction. What is the reference asset in a web3 payment? Where and how are those assets stored? A web3 payment transaction is likely to include a cryptocurrency, which is a digital unit of account issued on a permissionless, decentralized blockchain such as the BNB Chain.

Cryptocurrencies have high volatility, making them an asset that may not be best suited for payments, especially on a large scale. To avoid this volatility, stablecoins were created. Stablecoins are cryptocurrencies whose value is derived from a fiat currency in such a way that a 1:1 parity is maintained with the underlying asset (which is deposited in the form of cash or cash equivalent into the stablecoin issuer’s account). In simple words, 1 BUSD equals 1 USD, which makes its use as a unit of account much more ideal. Cryptocurrencies are stored in a digital wallet, which is the starting and ending point of any payment transaction.

In recent years, several centralized entities have realized the advantages that blockchain technology offers in terms of speed, traceability, settlement and, above all, the endless possibilities offered by programmable money. For this reason, several financial entities have already launched their authorized blockchains with their own monetary policies.

Governments and especially their economic arm, central banks, are also exploring the implementation of a digital currency issued by a central bank using blockchain technology that

It is not considered cryptocurrencies but CBDC (Central Bank Digital Currency). It should be noted that some CBDC experiments do not even use DLT.

Both CBDCs and cryptocurrencies issued by centralized entities do not share the differentiating characteristics of the general concept of cryptocurrency: their issuance without permission, decentralized or trustworthy. However, there are potential bottlenecks in the performance of a blockchain.

Blockchain Trilemma for Payments:

Blockchains are often forced to make compromises that prevent them from achieving all three:

1. Decentralized – creating a trustless blockchain system that has no central point of failure;

2. Scalable: the ability of a system to handle transactions per second;

3. Secure: The system’s ability to defend itself against hacks, bugs, and other malicious attacks.

Transaction latency and finality are immensely important to payment systems along with an elegant and convenient user experience. However, current systems allow limited throughput of a maximum of 5k tps (at best), while Visa can handle 24k tps.

This has led to the creation of Layer 2 and other scaling techniques that decouple compute and scalability capabilities where transactions are batched and have a final settlement at Layer 1.

The Lightning Network on Bitcoin is specifically designed to meet the requirements as a payment infrastructure where users can use it to pay for their daily activities, such as buying a coffee or paying at grocery stores. However, the widespread adoption of crypto for payments has been a pressing challenge.

BNB Chain is EVM compliant, allowing a block gas limit of 120M, meaning the amount of gas you can burn in one block for EVM, Ethereum and Polygon chains is 30M. BNB Chain is the most optimized EVM chain that serves as the basis for payments. Gasoline costs are relatively higher compared to other chains; however, to provide a better user experience, BNB Chain is implementing zk-rollup, zkBNB, and sidechain infra for application-specific blockchains. This would significantly reduce the cost of gas and increase overall performance.

One of the most repeated criticisms against cryptocurrencies is the impossibility of using them as a means of payment beyond that closed world that is the chain of blocks. BNB has several players who refute that claim.

Okse allows users of its wallet to pay with cryptocurrencies in hundreds of countries and businesses with its Visa-issued digital debit cards. Everything is done without permission and through a smart contract; the user only needs to send the funds from the wallet to the debit card contract, authorize it and only make their purchases and pay. Projects like PIP also target native web3 users. It also allows payments from social platforms to, for example, reward your favorite content creator or payments to web3 identities, being able to send a payment directly to a friend just using their BNB username. Streaming projects, such as Zebec, streamline the payment of services or payroll of crypto-native companies, enabling the existence of companies fully powered by digital assets.

Payments are still a nascent category in cryptography and it is not yet clearly defined what it will look like in a few years or what kind of projects will facilitate mass adoption. BNB Chain believes that payments will play a crucial role in the adoption of cryptocurrencies and therefore supports all relevant projects building in this direction.

This editorial was initially published in our Crypto Payments and Web 3.0 for Banks, Merchants and PSPs report. The first edition of our report aims to provide a payment resource of crypto terms and concepts for those interested in understanding the basics of crypto payments and their long-term impact. In addition, it shares practical examples of cryptocurrency-enabled banking and e-commerce services and presents the latest developments in the regulatory landscape. Furthermore, it reveals which are the most innovative companies in this space, which are building the crypto rails.

Investigation of the BNB chain

BNB Chain Research is an industry leading research laboratory that is actively engaged in thought leadership on key industry developments.