Blockchain Payments are Changing the Way Money Moves
After dominating the news cycle a couple of years ago, blockchain technology has been getting a break from the spotlight. But that does not mean it went away. Instead, more and more businesses are (quietly) adopting blockchain payments.
And some are doing it loudly. Last week, Paypal announced it was launching its own stablecoin, causing quite a stir in the financial world. And it’s hard to blame them when you consider that stablecoin payments settled more than $7 trillion of transactions in 2022, up from $6 trillion the year before, despite much less media coverage and large losses in market capitalization for more volatile crypto assets.
It looks as if the crypto selloff in 2022 is having the result many proponents of blockchain tech hoped it would: shaking out the fluff filling the space and highlighting the real use cases of the technology, like payments. In this article, we will take a deeper look at the advantages of blockchain payments to understand why they are ushering in such a change.
What are blockchain payments and how do they work?
A blockchain is a digital ledger where transactions are recorded in a secure, transparent, and tamper-proof way. Here is how a blockchain works for payments (we promise to keep it simple):
Transaction Creation: Jane wants to send money (e.g. a stablecoin like USDC) to Jill. She uses her digital wallet to start this.
Verification: Computers on the network check that Jane has the money and the transaction is valid.
Block Formation: Jane's transaction is grouped with others into a "block."
Approval: Before the block joins the chain, the network's computers must agree or reach a "consensus." This is a bit like solving a puzzle. It involves some pretty complicated cryptography that we will not get into here, but suffice to say, the transaction is vetted, because it is cryptographically approved and secured.
Addition to the Chain: Once approved, the block (with Jane's transaction) joins the blockchain, making it official.
Security: Once a block is added to the blockchain, altering it becomes computationally impractical because of the cryptographic links between blocks. This ensures that once a transaction receives enough confirmations from the network, it cannot be fraudulently altered.
It is also worth noting that there are tons of different blockchains in operation now (e.g. Bitcoin, Ethereum, Solana, etc.). Each has its own processing speed, costs, and characteristics, and the right network for the job will depend on the job itself. This is comparable to the variation in fiat transfer networks (ACH, wire, SEPA, etc.).
This process may seem extensive, but all of these steps happen in seconds. Using a blockchain for payments allows for faster, cheaper, and more transparent transfers without middlemen. Let’s look at why.
What are the advantages of a blockchain for payments?
Speed: Blockchain payment systems tend to be faster than traditional payment systems, especially for international transfers, because they don’t have to pass through so many intermediaries. In layman’s terms, they cut out the middlemen.
Cost: Blockchain payments also tend to be cheaper than traditional payments, for the same reason as their speed. This is especially true when payments cross international borders—everyone wants their piece of the pie, and international borders mean more pie-eaters.
Distributed: Blockchains are distributed in nature and have a large number of validators to ensure transactions are processed securely and transparently. For instance, the Ethereum blockchain has over 700,000 validators as of May 2023. This means that no single user or group of users on the network can override the others, keeping the process as democratic as possible.
Security: Mathematically-proven cryptographic techniques ensure the security and integrity of transactions, meaning they’re effectively impossible to defraud.
Transparency & Privacy: While all transactions are transparent and can be viewed by anyone on the blockchain, the identities of the participants are pseudonymous, represented only by alphanumeric addresses. It’s the dream of the internet fulfilled: total openness and anonymity. This might not seem like a big deal if you live in a country without an authoritarian government who seizes your assets at will, but imagine you do…
Borderless: Blockchain payments can be sent and received anywhere in the world, making them global and frictionless. National borders are nonexistent to a network of computers.
In recent years, there have also been developments in blockchain solutions tailored for payments in traditional fiat currencies. These are known as stablecoins, and they aim to leverage the benefits of blockchain for faster settlement times, reduced costs, and increased transparency without the price volatility of certain flashier cryptocurrencies (like Bitcoin and Ethereum).
A high-potential use case for blockchain: cross border payments
There is a growing consensus within the financial community that blockchain technology is disrupting cross-border payments. Here’s why:
Think of cross-border payments as the extreme case within traditional payments. All the problems of traditional payments—slow processing rates, high fees, inconvenient receipt methods, unconvincing security measures—are exacerbated when more intermediaries get involved. And cross-border payments have a lot of intermediaries.
Where traditional payment systems come up short
Cross-border transactions can take several days within the traditional banking system. With blockchains, transactions can be confirmed in seconds, regardless of the countries involved. If you’ve ever used international bank wires, you are familiar with the dreaded transfer fee for every transaction, and you are used to waiting multiple days for your money to arrive.
Tack onto that the unfavorable exchange rates you get from a traditional payment system (another intermediary fee) and your recipient is left with a lot less money than you sent. If your money is going to a country with volatile exchange rates (e.g. Argentina), this discrepancy is considerably higher. Stablecoins pegged to stable assets like the U.S. dollar can arrive in a currency that holds its value, so nothing has to be lost in transit. (Imagine the potential for remittances!)
Blockchain payments solve this problem
Blockchain payments save considerable time and money while providing added security, because it’s the network itself that runs and secures them. Without a central authority, cross-border payments on the blockchain are less susceptible to government controls, sanctions, or interference. They’re also faster and cheaper, because they bypass so many gatekeepers who, in traditional payment systems, delay the process and charge fees. But there’s even more potential here than just speed, cost, and security.
Access and Inclusion
According to the World Bank, over 1.4 billion adults are without a bank. Many people across the globe lack this access but do have access to mobile phones and the internet. Blockchain payments can offer these individuals, as well as their businesses, a means to make international transactions without a traditional bank account.
24/7 Operations
Unlike traditional banking systems which might have operating hours, blockchain operates round-the-clock, ensuring that transactions can happen at any time.
Imagine a cross-border payment from the United States to Indonesia. If the US account holder can only send money during the day, the Indonesian recipient can only receive it in the middle of the night. Blockchain payments let the sender and recipient find a time that works best for both of them. This has big implications for international businesses.
Blockchain for B2B cross-border payments
So far, we have mostly been discussing P2P (or person-to-person) payments. However, all of the blockchain advantages for cross-border payments apply to B2B (or business-to-business) payments as well. And considering the scale of B2B payments, running them through a blockchain can save a lot more money.
The shift is already taking shape. A survey by PYMNTS from 2022 found that 37% of firms have already experimented with blockchain for cross-border payments. The point at which a majority of businesses adopt cross-border blockchain payments is near at hand.
The applications of a blockchain payment platform like Mural for financial management are numerous. You could use Mural for payroll, paying international employees all at once in a single multi-currency batch payment. Or you could run all your B2B transactions through Mural, optimizing your business’s efficiency with lower costs and virtually nonexistent wait times for payments to arrive.
What’s next?
The largest obstacle to blockchain’s disruption of traditional cross-border payments has been the volatility of cryptocurrency prices. Stablecoins have solved that. Now, it’s only a matter of time before the shift takes over, as shown by PayPal and other payment giants’ adoption of the technology.
Mural is a blockchain-backed payment platform that puts the key to your finances in your hands. Its state-of-the-art platform takes payments far into the future, allowing you or your business to send money anywhere in the globe with no transfer fees, through a secure, easy-to-use interface.
If you’d like to see what Mural can do for your business, just schedule a demo.
