What The West Can Learn About Crypto From China

| Publish date: 10/22/2018
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There is no doubt that cash is starting to disappear from China’s teeming cities. Foreign tourists talk of struggling to buy things because they do not have either Alipay or WeChat Pay installed on their smartphones. Plus, merchants are no longer bothering to accept the banknotes they get from ATMs.

These stories elicit fascination among Americans, but not much more. In the U.S., many cannot s till grasp what the big deal is about digital payments. After all, pulling a credit card from the wallet is not much more inconvenient than pulling a smartphone out of the pocket and it costs the owner – if not the merchant – no more than if he/she used cash.

The Real Benefits

To the average American, China’s system seems no different from Venmo or Paypal, just more pervasive. But as Andreessen Horowitz partner Connie Chan said, the real benefits of China’s cashless revolution lie in how this new, software-based system of value exchange has become a platform on which new business models can be built.

Digitizing payments in this way, at very low cost, enables micropayments and seamless integration across different service providers, which, in turn, means merchants can provide a variety of new services to customers over an app. This helps to enhance the user’ experience, boost loyalty and engagement, and build network value.

Consider how Kuguo, the most popular of a number of Chinese music apps, provides “song coins” to fans, based on their level of engagement, which they can exchange into renminbi, the local currency.

Essentially, by removing intermediation costs from the payments system, Alibaba affiliate Ant Financial’s Alipay and Tencent’s WeChat Pay – both of which together now boast a billion users – have created a seamless foundation for a whole new digital economy.

The Integration Problem

According to Chan, this is where U.S. app developers are being left behind, because their products cannot integrate with this new model.

The relevance in this for people with interest in cryptocurrency and blockchain technology starts with the fact that this dream of a seamless, micropayments-enabled system of hitherto impossible new services is one that is often cited by crypto enthusiasts.

So, does China prove that one does need a blockchain to build a new Internet of Value, powered by device-to-device exchanges in an Internet of Things economy?

Although some U.S.-based providers are now creating services for Chinese tourists, so they can buy things in America with their WeChat Pay or Alipay accounts, most of the activity on these networks happens in China.

Most importantly, while Alipay and WeChat Pay are trying to crack other markets, there is no cross-currency facility. For all intents and purposes, this “cashless revolution” is happening within the boundaries of a renminbi universe.

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