How blockchain will change payment systems
Payments have become an integral part of our lives. Most people make different payments almost daily, if not several times a day. Going to the store, buying a song in the App Store or paying for a Netflix subscription. And few people think about the technology that allows us to make such a complex transaction as a service/access contract with a company whose office is located across the ocean, literally in three clicks.
And the most dynamic direction of payment systems development now can be called decentralized technologies. With the growing popularity of cryptocurrencies, the need for services that could simplify the exchange of digital money between users, as well as create opportunities to buy and pay for goods in any store, using the savings in your crypto-wallet has increased.
Payment systems from the cryptocurrency world
Today we will talk about fintech and its most promising direction – payment systems based on blockchain technologies. Let’s understand the reasons for the emergence of this niche and the advantages over classical centralized payment systems.
The first truly valuable application of blockchain is payments. Traditional remittance methods depend on a central counterparty to record and distribute ownership of assets, since only it owns the registry. In the case of international transactions, the situation is even more complicated, greatly increasing the cost and slowing down the speed of transactions. Blockchain systems work differently because of the distributed nature of the registry: everyone involved in a transaction has access to the registry and can check it at any time. Assets are cryptocurrency tokens that cannot be counterfeited and are much more secure than fiat currencies.
- The first advantage of decentralized payment systems over classical ones is cheapness. It is especially clear on the example of cross-border payments. The main problem of centralized financial systems is a number of intermediaries, which leads to the complexity and high cost of transfers.
- The second is speed. The absence of so many intermediaries, each of which affects the process of transferring funds, makes the transfer itself much faster. And there are only 3 persons involved in the transfer – the Sender, the Recipient and the Validator, which confirms the transfer in the blockchain network.
- The third is anonymity. Blockchain does not require the user to specify personal information, unlike banks and payment services. Cryptocurrency transactions are difficult to track and it is impossible to identify the participants unless they want to.
Of course, decentralized payment systems have a number of disadvantages, including high development costs and difficulty with legal status in some countries, as well as a smaller audience than classical finance.