The article summarizes the chapter in my book on cross-border payment, which I am writing for the book "Blockchain for Banking." compares seven prominent blockchain solutions for cross-border payments: Ripple, Stellar, Onyx (J.P. Morgan Coin), Ethereum, Corda, Quorum, and IBM Blockchain (Hyperledger Fabric). Each solution is evaluated against 20 critical functionalities to determine their efficiency, compliance, privacy, scalability, and suitability for international payment processes. The objective is to assess how these blockchains address challenges in cross-border transactions, such as settlement speed, cost, and security.
Key Functionalities for Cross-Border Payments
The functionalities were chosen to understand how each blockchain manages international payments comprehensively. Here is a closer look at the functionalities assessed:
- Transaction Settlement Speed: Measures the time taken for payment to complete from initiation to final settlement.
- Transaction Costs and Fees: This evaluates the overall costs involved, including fees for processing payments and foreign exchange (FX) conversion.
- Scalability and Throughput: Assesses the network's ability to handle multiple simultaneous transactions without lag or failure.
- FX Conversion and Liquidity: Analyzes the platform’s ability to perform real-time FX conversions and effectively manage liquidity for currency pairs.
- Transparency and Real-Time Tracking: Enables visibility into payment status for both sender and recipient, allowing real-time tracking.
- Automated Smart Contracts for Settlement: Examines the use of smart contracts to automate various aspects of payment processing.
- Network Accessibility and Availability (24/7): The network's availability to process payments beyond traditional banking hours, weekends, and holidays.
- Compliance Integration (KYC/AML): This check shows how effectively the platform integrates Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance.
- Privacy and Data Confidentiality: This section examines how transaction details are shared only among relevant parties to ensure data privacy and security.
- Interoperability with Legacy Systems: Assesses the ability of the blockchain to work alongside existing banking and payment infrastructures.
- Support for Multi-Currency and Tokenization: Evaluate the blockchain's capacity to issue and exchange tokens representing various fiat currencies.
- Real-Time FX Rate Discovery and Execution: Measures the ability to access real-time FX rates and execute cross-border transactions instantly.
- Operational Efficiency and Error Reduction: Analyzes how well the blockchain reduces manual processes, operational delays, and errors.
- Deterministic Finality of Transactions: Ensures that once a transaction is confirmed, it is irreversible and cannot be altered.
- Network Consensus and Transaction Validity: Considers the consensus mechanism for validating transactions and ensuring their accuracy.
- Cost of Compliance and Regulatory Reporting: Evaluate the ease and cost of meeting regulatory compliance and reporting standards.
- Liquidity Management and Bridging Assets: This measure measures the ability to use liquidity pools and bridging assets to facilitate FX conversions.
- Settlement in Multiple Jurisdictions: Assesses the platform's ability to function seamlessly across different countries and meet compliance needs.
- Resilience and Fault Tolerance: Checks the network's capacity to handle potential disruptions or faults without compromising transaction processing.
- Network Participants and Ecosystem Support: Examines the size and strength of the network's ecosystem, including financial institutions and developers.
These functionalities are critical for evaluating each blockchain’s capability to meet the demands of cross-border payments, focusing on factors like speed, security, compliance, liquidity, and operational efficiency.
Rating and Scoring Methodology
Each blockchain is rated on a scale from 1 to 10 for each functionality, with 10 being the highest possible score for performance. The total score for each blockchain is the sum of all 20 functionalities, and the average score is calculated by dividing the total by 20.
Comparative Analysis of Each Blockchain
- Ripple (XRP Ledger)
- Stellar
- Onyx (J.P. Morgan Coin)
- Quorum (by ConsenSys)
- IBM Blockchain (Hyperledger Fabric)
- Corda
- Ethereum
Overall Ratings and Performance
- Highest Rated Solution: Ripple, with an average score of 8.8, is the top performer due to its high transaction speed and efficient liquidity management.
- Runner-Up: Stellar, scoring 8.25 on average, is noted for its network availability and ability to support multi-currency operations.
- Third Place: Quorum, with an average of 8.2, is well-regarded for its privacy and data security features.
- Lowest Rated: Ethereum, scoring an average of 6.9, faces challenges due to high costs and liquidity issues despite its robust smart contract functionality.
Best and Worst Functionalities for Each Blockchain
- Ripple: Best in Transaction Speed & Liquidity Management (10). Struggles with Consensus Validity (8).
- Stellar: Best in Network Availability & Multi-Currency Support (10). Weaker in Scalability and Throughput (7).
- Quorum: Best in Privacy and Data Confidentiality (10). Limited in FX Conversion and Liquidity (7).
- Onyx: Best in Privacy and Data Confidentiality (10). Weak in FX Conversion and Liquidity (7).
- IBM Blockchain: Best in Privacy and Data Confidentiality (10). Limited in FX Conversion and Liquidity (6).
- Corda: Best in Compliance Integration & Finality (9). Struggles with FX Conversion and Liquidity (6).
- Ethereum: Best in Smart Contracts (9). Weaker in
