Visa’s Universal Payments Channel Could Be Huge for Bitcoin, Ethereum

This represents a 19% jump in three days, as well as the cryptocurrency market’s highest overall value in a month. Not only that, but Visa’s plans to create an interoperability channel for crypto and digital currencies is arguably the most bullish news of the year for the industry, which still suffers from a tarnished reputation in relation to supposed money laundering-problems and its (sometimes overstated) environmental impact.

Why? Well, because Visa is the eleventh biggest corporation in the world by market cap, and its creation of a payments channel for cryptocurrencies will serve as a massive force in legitimating and sanitising the sector. At the same time, by creating a big ramp between cryptocurrencies and CBDCs, it will also help increase the market’s liquidity and depth. And if that weren’t enough, its likely use of Ethereum as its base layer serves as a very significant endorsement of the latter blockchain.

Visa is Planning to Make Digital Currency Interoperable

Announced within a press release entitled “Making digital currency interoperable,” Visa explained that it had developed a “new concept” in solving the problem of inter-blockchain operability, as well interoperability between blockchains and the ledgers likely to be used by CBDCs (which are coming closer to realization).

“Think of it as a ‘universal adapter’ among blockchains, allowing central banks, businesses, and consumers to seamlessly exchange value, no matter the form factor of the currency,” wrote Catherine Gu, Visa’s Global CBDC Product Lead.

However, while Visa introduced its Universal Payments Channel as a “new concept,” its press release also revealed that it had been working on such a channel since 2018. Indeed, the press release includes a link to a more technically detailed research paper, which describes how the UPC will enable deposits, authorizations, settlements, cross-border payments and even support a “marketplace for digital currencies.”

It’s arguably this latter feature that, so far, is the most significant. As the research paper outlines, such a marketplace will provide Visa’s billions of customers with the ability to quickly convert/trade digital currencies with each other, thereby significantly expanding the reach and utility of digital assets as means of making payments to businesses and individuals alike, “whether C2B, B2B, or P2P.”

“On the retail level, UPC and its payment channels can support high throughput between different digital currencies enabling efficient transactions, in turn permitting for the adoption of digital currencies for everyday purchases and new use cases,” the paper’s authors note.

Indeed, with Visa creating and supporting a network (or rather, expanding its preexisting network) that will make it easier and more secure to transfer digital currencies, the cryptocurrency sector may finally find that adoption of crypto takes off in a way it had long hoped for. Because with some 3.3 billion Visa cards currently in operation, Visa would need only encourage, say, 10% of its existing customers to use digital currencies for it to have a very significant impact on demand for such currencies.

And yes, while the company’s press release only explicitly mentions stablecoins such as USDC (rather than bitcoin or ethereum), it’s clear that its channel is designed to be “universal” to all major cryptocurrencies, whether ‘stable’ or not. Note the use of “no matter the form factor of the currency” in the press release, or the following two sentences from the research paper:

“The UPC technology to be described in this paper is designed to be universally interoperable with different types of blockchains. This has the benefit of allowing the UPC to onboard and connect with additional new blockchains in a reasonably short span of time.” (Our emphasis.)

In other words, even if Visa’s channel begins only with support for stablecoins (and CBDCs), it remains technologically open to other cryptocurrencies. And even with support for only stablecoins, this would nonetheless have knock-on effects on the cryptocurrency market in general, insofar as increased use of stablecoins would result in increased demand for other cryptocurrencies.

Bullishness for Ethereum and Crypto in General

Much of the cryptocurrency community seems to believe that Visa’s increasing immersion in the sector is indeed highly bullish. Because if it does make stablecoins (and other cryptocurrencies) interoperable with CBDCs, it will go a long way towards normalizing and legitimizing cryptocurrency, while also providing its millions and millions of customers with a trusted on-ramp to crypto.

At the same time, the payments giant’s head of crypto, Cuy Sheffield, has revealed in a tweet that it’s currently testing its UPC with Ethereum as a base layer.

Source: Twitter

As many within the Ethereum community in particular have pointed out, Visa’s development of a UPC will be massively bullish for Ethereum if it does indeed end up using the blockchain as its base layer.

Source: Twitter

The price of ethereum has climbed by around 18% since September 30, when the news broke. However, it’s likely to climb much, much higher in the longer term if Visa does continue using its native blockchain, which would obviously see massive jumps in traffic if it were used to facilitate interoperability between CBDCs and cryptocurrencies.

And given that the rise of major coins such as ethereum and bitcoin tends to lift the entire market, we’d see parallel jumps from other cryptocurrencies, even if Visa did stick with Ethereum rather than other chains.

However, it needs to be underlined that Visa’s Universal Payment Channel remains very much a work in progress, with several technical challenges needing to be addressed (e.g. concurrent transactions, privacy standardization), as well as the final question of whether they’ll actually go ahead with it in the end. But with major central banks increasingly looking to launch their own digital currencies, it may indeed only be a matter of time before the concept of the UPC becomes a very bullish reality.