Blockchain is a transformative way to build a database that can store transactions online, which further opens new avenues for payment methods. With blockchain payments, both customers and merchants could avail of fast, secure, and low-cost cross-border payment solutions without the need for intermediaries.
In this article, we look at the benefits of a blockchain architecture over traditional payment systems.
Fig 1. Example of BTC and Fiat Money
Payments
The traditional payment methods and systems are centralized. It involves central authorities, such as central banks, commercial banks, and governments. These powerful media have complete control and access to user data. There are inherent risks to data sharing, such as an intrusion into privacy and security challenges. These authorities have great power, but great power comes with great responsibility and can lead to long-term trust issues if misused.
Some people in underdeveloped countries are unbanked and therefore cannot store, execute, and transfer payments. For instance, Iran is exempted from the SWIFT payment system. They are not allowed to trade in dollars. Same with Russia; they are also exempted from the SWIFT payment system. In Africa, 70% of the population does not have a bank account.
However, in Blockchain networks, processing payments cryptographically eliminates the need for a traditional bank account. People can use widely used mobile technologies to sell, buy, and transfer. Therefore, accepting cryptocurrency payments from Iranian, Russian, and African businesses is a great opportunity for people, entrepreneurs, and established businesses across each country and continent.
Fig 2. Blockchain transaction scheme using the Bitcoin network
The blockchain payment system provides more security and transparency to customers and businesses around the world. This is because all transactions are transparent and publicly viable to users. It uses payment addresses cryptographically and cannot be modified once they are system encoded.
Cost of Security Initiatives
Traditional systems, such as banks, require advanced security measures within the organization to protect customer data which are often expensive in nature. For example, building servers, security teams, and control teams are expensive for traditional payment systems. Security and protection of information through these systems are therefore costly.
Fig 3. Blockchain Security
Blockchain technology is inherently safe when incorporated into the system. Therefore, this system does not require any additional protection and is much cheaper than traditional payment systems.
Fees
Fig 4. Transaction fees
Banks charge a lot of fees because they are centralized systems. There are many operational/incidental costs faced by centralized systems. For example, project costs, security costs, labour costs, etc. Operation and cost recovery in a central system is much more costly than in a distributed system.
The blockchain payment system is transparent, decentralized, and is not controlled by any central authority. There is only a community of people on the platform who follow consensus. As a result, costs are reduced and fees are lower. The use of distributed ledgers also facilitates low-cost and seamless international payment processing services.
Instant Payment
In traditional payment systems, banks require processing time to pay out earnings. It takes days and days to convert your earnings into cash. Therefore, you will not receive payment immediately, even if you require it immediately and this process can be long, exhausting, and tiring. With the blockchain payment system, you can easily and quickly monetize without physical accounting records. All the records are stored digitally.
Transaction Speed
Blockchain payment systems are fast when sending and receiving transactions across borders. Traditional payment systems cannot keep up with this speed due to a lack of fast and strong infrastructure. The traditional payment system passes through multiple phases and steps. There is always a possibility of failure in one of the steps.
Blockchain technology uses a peer-to-peer process to make it secure and transparent. With blockchain technology, the approval process is fast, so transactions are much shorter.
The blockchain payment system is becoming more and more powerful over time and is set to disrupt traditional payment systems. As you’ll see over time, we can expect that the implementation of blockchain payment systems will revolutionize the future and drive real change to make payments faster, safer, and more reliable.