IBM Follows Ripple and Joins $2T Cross Border Payment Game With Stellar-Powered ‘World Wire’

On Monday (March 18th), IBM announced the official launch of IBM Blockchain World Wire (which it quietly introduced in September 2018), and said that its blockchain-powered cross-border payments solution is "now in limited production and available in a growing number of countries."

What is IBM Block Chain World Wire?

Here are what IBM sees as the problems/limitations of traditional cross-border payment solutions:

  • "Separate clearing and settlement"
  • "Involves middlemen"
  • "Slow processing"
  • "Requires high fees"
  • "Fluctuating exchange rates"
  • "Error-prone and insecure"

IBM's solution is powered by the Stellar network. IBM Blockchain World Wire "provides shared distributed ledgers for atomic payment clearing and settlement in near real-time," and the network "uses digital assets — serving as the agreed-upon store of value exchanged between parties — to settle transactions while integrating payment instruction messages."

This diagram illustrates the role of the various actors involved in a cross-border payment:

IBM World Wire Screenshot 1 - 19 March 2019.png

IBM says that its solution brings major benefits in three areas:

  • Trust: "Increased transparency"; "Immutable transaction history";
  • Simplicity: "Decreased need for intermediaries"; "Shared distributed ledger system";
  • Efficiency: "Near real-time remittance"; "Easy consensus between stakeholders";

The process of making a cross-border payment using Blockchain World Wire (which uses the Stellar protocol) has the following steps:

  • "Two financial institutions transacting together agree to use a stable coin, central bank digital currency or other digital asset as the bridge asset between any two fiat currencies."
  • "The institutions use their existing payment systems – seamlessly connected to World Wire’s APIs – to convert the first fiat currency into the digital asset."
  • "World Wire then simultaneously converts the digital asset into the second fiat currency, completing the transaction." ("All transaction details are recorded onto an immutable blockchain for clearing.")

IBM's press release says that IBM Blockchain World Wire, so far, has "has enabled payment locations in 72 countries, with 47 currencies and 44 banking endpoints," and that as it gains regulatory approval around the world, it will expand its global payments network, which "already supports settlement using Stellar Lumens and a U.S. dollar stable coin through IBM's previously-announced collaboration with Stronghold."

Although no banks have actually signed up yet to use World Wire, six international banks, including Banco Bradesco, Bank Busan, and Rizal Commercial Banking Corporation (RCBC), have "signed letters of intent to issue their own stable coins on World Wire, adding Euro, Indonesian Rupiah, Philippine Peso, Korean Won and Brazilian Real stable coins to the network." As IBM has said previously, it plans to "continue to expand the ecosystem of settlement assets based on client demand."

Marie Wieck, General Manager, at IBM Blockchain, says:

"We've created a new type of payment network designed to accelerate remittances and transform cross-border payments to facilitate the movement of money in countries that need it most. By creating a network where financial institutions support multiple digital assets, we expect to spur innovation and improve financial inclusion worldwide."

Luiz Carlos Brandao Cavalcanti Junior, Innovation and Digital Channels Executive Director, at Banco Bradesco, says:

"Bradesco continuously adopts innovation that enhances customer experience and improves efficiency. The World Wire Network addresses both of these aspects, and therefore presents a valuable opportunity for Bradesco and its customers in Brazil."

Meanwhile, Manny T. Narcisco, First Senior Vice-President, at Rizal Commercial Banking Corporation, says:

"RCBC is pleased to be an early innovator with plans to issue our own Peso stable coin on World Wire, pending final approval from our regulators. We're focused on innovation that adds value for our customers, and World Wire presents a tremendous opportunity to transform and enhance our payment infrastructure."

IBM's World Wire vs Ripple's xRapid

So, should Ripple be worried?

This is what Jesse Lund, IBM's Vice President of Blockchain and Digital Currencies, said about Ripple in an interview last month: 

"Credit Ripple for the vision of using a digital asset in order to enact immediate settlement with finality. I think their implementation followed one path. Our implementation is a little bit different. We are not the issuer of an asset. In fact, what we believe is that there should be an ecosystem of a variety of digital assets that provide the settlement instruments that enable these cross-border payments. The participants on the network should be able to choose and negotiate their choices in real-time and the pricing might be different depending on the settlement instrument you use. So, I think with Ripple, they're looking at XRP as the primary digital asset for settlement, and for us, it could be lumens, it could be Ripple, it could be XRP even, it could be Bitcoin, but it would also probably include other instruments like stablecoins and even eventually, hopefully soon, central bank issued digital currencies."

Although both World Wire and xRapid are competing solutions in an industry that IBM expects will be worth approximately $2 trillion by 2020, World Wire only went live in production yesterday and it does not have any actual customers, while xRapid went into production in October 2018, and already has multiple customers who are using it for actual cross-border payments. For example, most recently (on March 5th), we heard from UK-based cross-border payments specialist Mercury FX, which announced that it had just completed its first live commercial payment to the Philippines via xRapid.

Although some might see this as a zero-sum game, it is very possible that IBM's entry will only serve to legitimize blockchain-powered cross-border payments, and that both companies can be very successful. Furthermore, we should not forget that World Wire is agnostic about which digital asset is used as the bridge currency, and as IBM's Lund expressed last month, that currency could be XRP.

Also, both companies should keep in mind that rather than fight each other, they should focus on their real competition, SWIFT, with its "gpi" product, which does address some pain points, but fails to "enable settlement at the time of payment," as Ripple CTO David Schwartz pointed out on March 14th during an interview at the SXSW 2019 conference.

Featured Image Credit: Photo by "xresch" via; Diagram Courtesy of IBM

Why It’s so Difficult to Launder Money on the Blockchain

Written by Andre Kalinowski, founder at blockchain monitoring platform PARSIQ

There is still a common misconception about cryptocurrencies amongst the public. They often regard it as a method for shady deals and illegitimate companies. This stems partially from the fact that one of the first real-world use cases of Bitcoin was its use for payments on the infamous dark web marketplace Silk Road, where anonymous users could buy almost any banned product, ranging from illegal drugs to weapons. Moreover, the authors of ransomware have also hidden behind Bitcoin’s anonymity in the past.

However, while the early days of Bitcoin may have been littered with unscrupulous transactions, modern advances in blockchain analysis mean that it is far more difficult to launder money on the blockchain than many realise. Most cryptocurrencies are far less anonymous than people expect, and transaction history is a lot more traceable than fiat currencies.

With this in mind, we will explore the reasons for why it’s so difficult to actually launder money on the blockchain and debunk the myth that crypto is a good place to carry out shady exchanges.

Less Anonymous Than You Think

In essence, most blockchains are transparent public ledgers. This means that every transaction made can be read by anyone and remains on the ledger forever, with records of the accounts and the inputs and outputs involved in each transaction, so transaction history can be followed back to gain significant knowledge over an individual’s financial affairs.

Another important factor to consider is that while cryptocurrencies were created to be pseudonymous, this anonymity is lost as soon as cryptocurrencies are moved out of the system. Even though crypto wallets comprise a series of letters and numbers that do not provide any information on the account holder, as soon as someone purchases something in crypto using that wallet as an account, or if they were to convert their crypto into fiat currencies, people can trace where the crypto came from and the previous transactions that were made with these specific digital assets.

For example, if you were to hack a crypto exchange, you’d have the perfect tool in cryptocurrencies for moving your newly acquired money around anonymously. However, you would not be able to use this money for anything because as soon as you spend that money, or try to exchange it into fiat, it would be immediately obvious that you were the person that hacked the exchange.

Can Dirty Coins Be Cleaned?

There are a number of ways that crypto criminals might try to “clean” stolen or “dirty” coins. Firstly, they might try manual methods, by mixing transactions of various people in a way that it is not clear anymore what the origin of each participant’s funds is. While this approach may confuse the casual observer trying to track transaction history, tracing is still possible. Moreover, the only way to cash out on these dirty coins is through off-chain services, such as LocalBitcoins, as exchanges are strict about their KYC procedures – but even this can be tough with many off-chain services removing their cash payment option, in order to negate untraceable withdrawals.

An alternative method of laundering illicitly obtained cryptocurrencies is by using a centralised mixer service, such as Bitcoin Laundry, which mixes your transactions with other users’ transactions using an algorithm, in order to obscure your transaction history.

However, while mixer services are more effective that manually mixing transactions yourself, it’s still possible for both human analysts and blockchain analytic software to trace coins passed through a hosted mixer service. In fact, a paper published in 2017 found that many mixer services are not a sophisticated as they appear to be, as their algorithms have a tendency to follow repeated patterns and re-use certain addresses.

A third option, which works best for account-based blockchains such as Ethereum, is to forego the need to trust a third party to mix your coins for you and rely on smart contracts instead. However, this decentralised option still has issues when it comes to privacy, as smart contracts are transparent and so mixer contracts can be easily identified through the deposit and withdrawal history of accounts. Earlier this year, Vitalik Buterin suggested a high-level design for a mixer contract that would avoid transfers being visible on-chain. However, this idea seems far from coming to fruition as it involves off-chain transactions and zero-knowledge proofs.

Tracing Transactions Got a Whole Lot Easier

While mixing coins and transactions can help to obscure transaction history and launder cryptocurrencies on the blockchain, technology continues to evolve to allow us to trace funds, no matter how they have been mixed. There are several blockchain analytics and monitoring tools available on the market which would allow you to track addresses and patterns, enabling you to identify whether certain coins have passed through some form of laundering process.

Thanks to new capabilities in blockchain monitoring and analytics, it’s easy for exchanges to track and trace where coins have come from, meaning they can blacklist certain addresses and reject business from dubious sources. So, despite what many may think, hackers and criminals have their work cut out for them, as laundering money on the blockchain is actually far more difficult than laundering fiat currency.