Crypto-Payments: Why Identified Transactions Don't Need Blockchain

1. The Problem Blockchain Was Built to Solve

Bitcoin's foundational paper (Nakamoto, 2008) posed a specific problem: how can two parties who do not know or trust each other transfer value without a trusted intermediary? The answer was a distributed ledger maintained by thousands of nodes, each holding a complete copy of every transaction ever made, with consensus achieved through proof-of-work computation.

This was an elegant solution to the anonymity problem. If you don't know who the other party is, you can't trust them. If you can't trust them, you need the network to verify the transaction for you. The entire architecture — the distributed copies, the mining, the consensus protocols — exists to compensate for the fact that the participants are unknown.

2. The Cost of Anonymity

The costs are staggering and well-documented:

Every one of these costs exists because the system must verify transactions between anonymous parties. The distributed copies exist so no single node can falsify the record. The mining exists to make falsification computationally prohibitive. The slow throughput is a direct consequence of the consensus overhead.

2.1 Why the Designers Wanted Anonymity

The design choice was not accidental. Anonymity serves two purposes. The first is ideological: a payments system outside state control. The second is economic: anonymity enables speculation. If tokens are anonymous bearer instruments — digital cash with no identity attached — they become tradeable assets. Speculation drives demand. Demand drives price. Price attracts more speculation.

This is why cryptocurrency has become primarily an investment vehicle rather than a payment system. The architecture was optimised for the wrong thing. It was optimised for anonymity when the real world of commerce requires identity.

3. Business Payments Are Identified

Consider any real commercial transaction. A company buys goods from a supplier and pays for them. In this transaction:

• The customer knows who they are paying
• The supplier knows who is paying them
• The customer's bank knows it is debiting the customer's account
• The supplier's bank knows it is crediting the supplier's account

All four parties are identified. All four parties have a direct interest in the transaction being recorded correctly. The customer wants proof they paid. The supplier wants proof they were paid. Both banks want their records to balance.

This applies equally to business-to-consumer transactions. When you buy something online, the retailer has your details. Your bank has the retailer's details. The payment requires identity to function — for delivery, for returns, for warranties, for tax, for accounting.

The same is true of payroll, rent, loan repayments, insurance premiums, utility bills, subscription payments, and virtually every recurring commercial transaction in existence. Identity is not optional. It is the precondition.

4. Co-Signature: The Alternative Architecture

If all four parties are identified, a fundamentally simpler architecture becomes possible. Instead of thousands of anonymous nodes maintaining consensus on a distributed ledger, four known parties cryptographically co-sign a single shared value.

Each party holds one copy of the transaction with all four signatures. Any party can independently verify the transaction by checking the other three signatures. No consensus mechanism is required because the parties are not anonymous — they are the counterparties to the transaction itself.

4.1 Why This Is Secure

The security model is different from blockchain but no less robust. Blockchain asks: can the network agree this happened? Co-signature asks: do the four parties who were actually involved agree this happened?

To falsify a co-signed transaction, you would need to compromise the private keys of all four parties — the customer, the supplier, and both banks. This is at least as difficult as attacking a blockchain, and arguably harder because the keys belong to known, regulated entities with strong incentives to protect them.

If any single signature is missing or invalid, the transaction is unproven. If the customer's bank says it debited £10,000 but the supplier's bank has no corresponding credit, the discrepancy is immediately visible. The four signatures create a self-auditing system.

4.2 Why This Is Fast

A co-signed transaction requires four digital signatures. That's four cryptographic operations. Not thousands of nodes reaching consensus. Not proof-of-work computation. Not block confirmation delays.

The system operates at the speed and cost of email because that is essentially what it is: four parties exchanging cryptographically signed messages. There is no shared ledger to update, no block to mine, no network to synchronise.

5. What Co-Signature Enables

5.1 Real-Time Settlement

With no consensus delay, payments settle in seconds. This eliminates the multi-day clearing cycles that currently characterise interbank transfers and the confirmation delays that make cryptocurrency impractical for point-of-sale transactions.

5.2 Integrated Accounting

Because both parties sign the same transaction, the accounting entries are automatically mirrored. The customer's purchase is the supplier's sale. The customer's cash outflow is the supplier's cash inflow. Both sides of every transaction are captured at source, eliminating the reconciliation work that currently consumes significant accounting resource.

5.3 Audit Trail

Every transaction carries four independent cryptographic proofs of what happened. Auditors do not need to trust either party's records — they can verify the signatures directly. This makes fraud not just difficult but provably detectable: any unilateral alteration breaks the signature chain.

5.4 Programmable Conditions

Co-signed transactions can carry conditions without smart contracts running on a blockchain. A payment can be structured as: release funds when the supplier's delivery confirmation co-signs with the customer's receipt confirmation. The logic is in the signature requirements, not in code executing on a distributed virtual machine.

6. Why Blockchain Persists

If the argument is this straightforward, why does blockchain dominate the conversation about digital payments? Three reasons.

First, speculation. The cryptocurrency market exists because tokens are tradeable assets. An enormous financial ecosystem — exchanges, funds, derivatives, mining operations — depends on blockchain continuing. The incentive to promote blockchain as the future of payments is financial, not technical.

Second, conflation. "Crypto" has become synonymous with "blockchain." The cryptographic techniques that make digital signatures secure are independent of distributed ledger technology. You can have cryptographically secure payments without blockchain. But the terminology obscures this distinction.

Third, the anonymity use case is real — for some transactions. There are legitimate reasons to want anonymous payments (privacy, censorship resistance) and illegitimate reasons (money laundering, sanctions evasion). Blockchain serves this use case. But this use case is a tiny fraction of global payment volume. The vast majority of payments — B2B invoices, payroll, consumer purchases, rent, subscriptions — are and should be identified.

7. Conclusion

Blockchain's genius was solving the problem of trust between anonymous parties. Its limitation is that it solves only that problem, at enormous cost, and most payments don't have that problem.

Business payments are identified. The customer, the supplier, and both banks are known. When four known parties each sign the same transaction, the transaction is proven. No distributed ledger. No consensus mechanism. No mining. No energy consumption equivalent to a nation state. No seven-transactions-per-second ceiling.

The result is crypto-payments — cryptographically secure but not blockchain-based. Operating at the speed of email. Costing fractions of a penny. Settling in seconds. Self-auditing. And building the accounting ledger as a byproduct of the payment itself.

The future of digital payments is not a better blockchain. It is recognising that identified transactions never needed one.