MUFG, Akamai partnership shows possible future of cryptocurrency payments
With a semi-centralised blockchain and a simple pegged stablecoin, MUFG bank's crypto plans show how it can be done.
MUFG is the world's fourth largest bank and is one of the frontrunners in digital currency and blockchain technology, with plans to build its own digital currency exchange and roll out a digital yen coin by 2019. This blistering pace, relative to traditional financial institutions if not cryptocurrencies, might give some insights into what digital currency payments will look like in the future.
MUFG has partnered with US-based firm Akamai Technologies to create a blockchain network that can run up to 1 million transactions per second, reports CoinTelegraph Japan. The system is expected to enable card payments with fees of about 10% the current norm.
"MUFG and Akamai verified that by using this new blockchain technology under realistic business conditions, Akamai's platform was capable to process transactions in less than 2 seconds, processing a million transactions per second. There is also potential to further develop this processing ability, permitting the handling of 10 million transactions per second," reads the MUFG press release.
The system described in the press release is a semi-centralised blockchain with all its nodes on the Akamai cloud platform. This allows for the advantage of a speedy system, while remaining sufficiently decentralised to prevent the falsification of certain transactions on the part of individual bank staff and to prevent it from being knocked out by earthquakes or other events. Essentially MUFG is accepting the risk of placing complete trust in Akamai in exchange for usability.
It's not sufficiently decentralised for a real global cryptocurrency, but for an individual bank that wants to quickly unlock the benefits of digital currency, it might be more than enough. These benefits can give MUFG some completely unique selling points, such as letting its customers make international micropayments, automatically and provably deducting appropriate taxes on their behalf and much more.
The advantages are very real, especially for whichever bank gets there first and manages to release its own coin.
The MUFG coin
MUFG's plan is to run its own yen-pegged stablecoin across that blockchain.
Stablecoins are a particular subset of cryptocurrencies. These partly do away with the inherent volatility of cryptocurrency as a speculative asset in favour of creating a price-stable digital currency that can remain pegged to a certain value. Most global cryptocurrencies use the US dollar by default, but MUFG will be using the yen for its peg. This lets one unlock the benefits of digital currencies (programmable money, near-zero fees, etc) without the volatility of a highly speculative asset.
Digital currencies have different ways of maintaining their peg. The three main methods might be described as follows:
- Simple backing (eg, Tether). This is simply a coin that's backed up with the reassurance of real money, gold or some other collateral in a vault somewhere. It's simple and straightforward, but not necessarily the most confidence inspiring. One of the first stablecoins, Tether, uses this system. It's been widely criticised for a lack of transparency however.
- Complex backing (eg, Maker DAO). These are often paired coin systems, where one coin remains stable while the other is a speculative system asset. Maker, for example, pegs its Dai stablecoin to the US dollar, and keeps it there with Ether collateral followed up with MKR holders as buyers of last resort. This can offer users more confidence in a coin's value, but introduces additional complexities.
- Self-sustaining economy (eg, Havven). Rather than backing up a stablecoin with some form of outside collateral, these projects aim to create an entire economic system, with a coin's value held aloft by its own use. For example, Havven uses a paired coin system consisting of one speculative token and one USD pegged coin. The value of the speculative token is driven by the usage of the pegged coin, whose supply will expand and contract based on the value of the speculative token.
The MUFG coin will likely be a simple yen-pegged stablecoin, which MUFG will initially release in select amounts to about 100,000 customers who opt into a trial slated to begin in 2019.
MUFG's cryptocurrency movements are relatively simple compared to what's going on elsewhere, but as a bank, it has to contend with a much stricter regulatory environment than most crypto projects and is breaking new ground in its own way.
Keeping it simple is probably the best way to get to market first and enjoy a digital currency edge over its competitors. Most people don't change banks too frequently and game-changing technologies like currency digitisation don't come along often. As such, cryptocurrency technology is one of those extraordinarily rare opportunities for a bank to be the first to create an entirely unique product with fundamental advantages over anything else on the market.
A lot of banks are looking at the blockchain as a solution for the growing KYC/AML nightmare, but MUFG is one of very few actively moving towards currency digitisation. With large scale trials set to commence in 2019, it might be one of the earlier arrivals.
Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VEN, XLM, BTC and NANO.