UPC White Paper:
With the innovation of distributed ledger technology (DLT), often known as blockchain technology, there has been significant growth of digital tokens in the form of cryptocurrencies, stablecoins, and central bank digital currencies. As the number of DLT networks increases, each with varying design characteristics, the likelihood that transacting parties are on the same network decreases. Thus, it is crucial to facilitate payments that are universal across networks, scalable to massive loads, and highly available. We envision a future payment network that may be built on top of DLT networks without being subject to their limitations on interoperability, scalability, and availability faced by DLT payment solutions today. Specifically, we propose a hub-and-spoke payment route, referred to here as Universal Payment Channels (UPC), that can be used to support digital token transfers of funds across different networks through payment channels. We further discuss the potential use cases of the UPC technology to support, and not complicate, an already robust digital payment ecosystem. Finally, through the paper, we share some future directions of the UPC technology.
Policy Guidance:
Growing interest in digital forms of payments have led central banks around the world to explore the possibility of issuing a new type of central bank money, known as Central Bank Digital Currency (CBDC). While we anticipate many central banks will implement some form of a digital ledger, it is unlikely that they all adopt the same stack of technologies and protocols due to, for example, different governance, market requirements, technology providers, and compliance standards. These differences would limit the interoperability of CBDC networks, which could add friction to future crossborder CBDC payments. Critically, the Bank of International Settlements (BIS) is analyzing these issues as well as evidenced in its recent analysis of a multiple CBDC (mCBDC) arrangement. In this paper, we will focus on the challenges of cross-border payments in the emerging age of CBDCs. We will also envision and evaluate scenarios of how cryptographic interoperability protocols for CBDCs could allow digital money to be moved between these networks. Specifically, we propose crossborder CBDC payment routes called Universal Payment Channels (UPC) that could allow instant transfer of funds across CBDC ledgers. We further discuss the technical tradeoffs policymakers will need to consider prior to choosing the right interoperability method. As with all considerations regarding CBDC, these decisions will be based upon the unique objectives of a particular central bank and how it envisions the future CBDC ecosystem. Finally, through the paper, we will analyze some of the broader opportunities and challenges of cross-border CBDC payments going forward.
CBDC Cross-Chain Interoperability:
As the number of digital currency networks increases — each with unique design characteristics — the likelihood that consumers, businesses, and merchants are transacting on the same network and utilizing the same type of money decreases.
Visa believe that for CBDCs to be successful, they must have two essential ingredients: a great consumer experience and widespread merchant acceptance. It means the ability to make and receive payments, regardless of currency, channel, or form factor. And that’s where Visa’s UPC concept comes in.
A Network of Networks:
The story of UPC begins in 2018. The Visa Research team — a group of scientists and engineers focused on emerging technologies —began developing a framework for interoperability that would work across different blockchain networks and be independent of the underlying blockchain mechanisms.
New, trusted blockchains could easily be added to the network of networks by creating new payment channels within the UPC hub.
UPC’s specialized payment channels would be established off the blockchain and leverage smart contracts to communicate back with the various blockchain networks, delivering high transaction throughput securely and reliably and improving speeds overall.
While UPC would exist in the background for most users, it would deliver the kind of cross-chain interoperability that makes CBDC useful and attractive for consumers and businesses globally.
Check out a sample of the basic smart contract for UPC here
Visa's Head of CorpDev and M&A, CEMEA, and Visa Ventures; Smiyet Belrhiti shared the insider views and opinions from Visa live on DSRPTD 2021 Stage.
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