A key aim is to enable blockchains or account-based ledgers
with different technologies to talk to each other.
Visa’s solution is a hub and spoke Universal Payment Channel
(UPC) that processes transactions outside the blockchains to address
scalability and the potentially high costs and delays involved in blockchain
payments.
The UPC hub is essentially a server or set of servers. At
one point, Visa described the UPC hub as a kind of universal correspondent
bank. It touts the advantage of only needing to provide identity verification
once as opposed to the identification challenges of setting up numerous banking
relationships.
Wallet providers would set up channels with the UPC hub to
enable cross border payments with multiple CBDCs. To do so, the wallet provider
would need to provide identification and collateral. Then it can start
executing interchain payments.
While the concept can work between both account-based
ledgers and DLTs, it requires smart contracts. However, one does not need a DLT
to use a smart contract. For example, Digital Asset’s smart contract language
DAML supports databases.
One thing that will concern some people is the idea of
having a centralized node authorizing transactions.
However, the Visa paper states “clients register with a UPC
hub to route their transactions to other clients. Note that this routing
requires zero trust to be placed on the UPC hub (the UPC hub does not need to
be trusted like a central intermediary).”
It says the UPC hub “acts as a gateway to receive payment
requests from registered sending parties and routes them to registered
recipient parties.
The UPC hub is trusted to be highly available and process
payment requests, and by design, its operation is fully transparent to any
entity that can read the state of the two ledgers. Our protocol requires the
UPC hub to authorize every payment that happens between the parties off the
ledger.”
Getting a little more technical, the solution is based on
digital signatures and hash-time locked contracts (HTLCs).
Meanwhile, the G20 outlined that CBDCs are one potential
route to address the challenge of high cross border payment costs. As a result,
more than one multi-CBDC experiment is in progress.
This includes the M-CBDC Bridge project between Thailand,
Hong Kong, China and UAE, and Project Dunbar, including Singapore, South
Africa, Malaysia, and Australia. Another is Project Jura between France and
Switzerland. All involve the BIS. Yesterday we reported that Citi also has a
suggestion on how to address multiple CBDCs.