Businesses may automate business operations with excellent security and transparency by utilizing blockchain technology. The payments and banking sector has lagged behind the excitement among the various industries that blockchain has revolutionized thus far.
As the world moves toward digitalization, the payments sector has embraced several clever technologies to streamline payment processes. We have all changed from merely taking cash payments to creating cashless economies. As more digital payment methods are adopted, people are starting to embrace this way of exchanging money.
People became aware of the advantages of blockchain-based payment methods as decentralized technology gained widespread traction. Blockchain technology is used in blockchain payments. However, to fully grasp this idea, we must go into the specifics of blockchain technology, including its applications in payment systems and advantages.
What Is Blockchain?
"Chain of blocks" is what blockchain refers to. The distributed network of computers' time-stamped digital records of all transactions and data exchanges are contained in the blocks. Like a distinct ID, a "block" has its cryptographic hash. The data that links the blockchain is included in each block, its hash and the preceding block's hash.
A new block is added to the blockchain every time a new transaction occurs. All network nodes must first validate each transaction, and for a transaction to be verified, they must reach an agreement via a consensus process. Several blockchains use consensus techniques like Proof of Work and Proof of Stake. Blockchain is a very good payment technology since it has several benefits, including security and transparency.
What Are The Advantages Of Blockchain In Payments?
Through encrypted distributed ledgers that provide reliable real-time verification of transactions without the need for middlemen like correspondent banks and clearinghouses, blockchain enables quick, safe, and affordable international payment processing services (among other transactions). Although blockchain technology was first developed to support the virtual currency Bitcoin, it is currently being investigated for several non-Bitcoin uses. It also provides the following primary advantages:
Removes Intermediaries
With the way the payment system is set up, mediators and intermediates are required. A payment must go through several authorizations and middlemen, including the issuer, exchange mode, payment gateway, etc. Intermediaries have the following disadvantages while being in charge of upholding the legitimacy of payments:
- Their service is chargeable
- It increases the transaction time
In contrast, blockchain-based payment methods allow users to:
- Easily settle deals
- Preserve the legitimacy of the transactions by eliminating the need for intermediaries.
- Enable peer-to-peer payments or transfers.
- Store the transaction information safely.
- Quickly create a Bitcoin wallet and utilize it to make purchases.
These features of the blockchain payment system have also encouraged banks to integrate blockchain transactions into their systems so they may take advantage of the following advantages:
- Simplify transactions
- Settle them quickly
- Eliminate intermediaries from the payment system
Transparency And Security
A crucial advantage of blockchain technology is its elevated degree of transparency. The following are the specifics of every transaction made over a blockchain network:
- Stored in the blockchain
- Immutable
- Visible to everyone
As a result, you don't need to worry about keeping any records while making payments because they are stored on the blockchain, where they are protected and data integrity is maintained.
Every block is chronologically connected since it contains both its hash and the hash of the preceding block. As a result, nobody could alter the entries on the blockchain since any modification would be apparent.
Safe And Quick Cross-Border Payments
Cross-border payments occur when the payer and the payee live in separate nations. For a very long time, making cross-border payments has been challenging and presents some obstacles, including:
- The number of middlemen engaged is high.
- The current approach is more costly because of fees, even if it could lower the likelihood of fraud.
- Given that successful cross-border payments might take anywhere from one to five days, the processing period for payments is extended.
- Regulations protecting personal data privacy are unclear.
- There's not enough openness.
With blockchain, one can:
- Immediately transfer money between nations. Systems for blockchain payments can cut the time it takes to execute payments from days to a few hours.
- Minimize the middlemen in the payment process since blockchain provides highly transparent assurances about the legitimacy of payments.
- Because every transaction data on the blockchain is unchangeable, be sure that payments and information are secure.
Automation With Smart Contracts
Automation with smart contracts is a great advantage, especially for people running businesses and companies. It can:
- Reduce the payment time
- Help facilitate instant payments
- Automate payment flows.
It is essential to provide all terms and conditions for payment transfers in smart contract authoring. The interested party is immediately compensated when the requirements are satisfied.
Let's say a business uses a content creator to produce some content. When the individual completes the task and fulfills half of the agreement, he will be immediately compensated. Now that you know the advantages of blockchain technology for payments, let's examine how these systems operate.
How Do Blockchain Payment Systems Work?
The blockchain's payment mechanism is simple to use. Using an example, we have provided a clear explanation of how a cross-border payment would take place over a Stellar Blockchain Payment System.
Let's say you are a US citizen who sends $10,000 to a buddy who lives in Germany. The Stellar blockchain network is connected to both of your banks. This is how the payment would be made:
- Ten thousand dollars will be sent from your bank to your friend's bank.
- Your friend's German bank will get a $10,000 transaction request.
- His bank will confirm with him before approving the request.
- Ten thousand will be taken from your account after your bank approves the transaction.
- The $10,000 will be converted to Stellar Lumens (XLM) and sent to your bank's pool account.
- The Stellar Lumens will be sent to the Stellar Network, where they will be exchanged for euros at the highest rate available.
- The funds will then be credited in euros to your friend's German bank account.
In the Stellar Network, banks play the role of "Anchors." In the Stellar Network, entities or organizations that maintain deposits and grant credits under regulations are called "Anchors." Since all financial transactions occur in credits granted by Stellar Network Anchors (apart from XLM), they link the various currencies and the network.
How Can A Blockchain-Based Payment System Be Put Into Place?
Several issues must be resolved before a blockchain payment system can be successfully implemented-
Define Your Project Scope
You should decide the strategy you'll be using to build a blockchain payment system while outlining the scope of your project. Among the tactics you can use are:
- Creating a new coin and blockchain network.
- Creating a new token for a blockchain platform.
- Making use of a crypto-payment portal.
- Establishing a payment system with Stellar or Ripple.
Determine Your Front-End Technology Stack
Selecting your front-end technology stack comes next after establishing the scope of your project. To decide, you must first determine the type of front-end application you want to provide your users and select the appropriate technological stack.
Determine Your Blockchain Platform
Once your front-end technology stack has been determined, you must select a blockchain network platform. You may utilize various advantageous blockchain network platforms to integrate blockchain payment systems into your company. But that depends on the strategy you choose.
Examine some of the most promising blockchain platforms that are accessible to see how they operate and how much they cost if you want to create a blockchain network and token from scratch. It is advisable to consider all your alternatives before choosing one if you intend to create a new token on an already-existing platform.
Initiate Development
Selecting a highly skilled development team is the last planning step you need to do before starting the execution. How you go about things will determine how big of a crew you require. The following individuals should be on your development team:
- Supervisors of Projects
- Blockchain Programmers
- App Developers (according to the specifications for your front-end application)
- Assessors of Quality
To put the blockchain payment system into place, you can also consider employing a specialized development team. After completing your project's planning, the next step is project implementation.
Execute Your Project
Execution of your project depends upon its scope; either carry it out yourself or hire a blockchain development company to handle all technicalities involved in its completion. If you plan to develop a blockchain network and cryptocurrency, there are various components which need to be in place:
- Infrastructure-As-A-Service (IaaS) solutions in the cloud.
- Your peer-to-peer network with advanced encryption techniques
- A consensus algorithm
If you want to build a token on a blockchain network, such as Stellar or Tezos, the consensus algorithm becomes essential in meeting specific criteria:
- Establish your account and crypto-wallet
- Install and configure any necessary tools or APIs
- Code your smart contracts
- Test your smart contracts
- Deploy your smart contracts
- Create crypto-tokens
If you plan on setting up a crypto payment gateway like Stellar or Ripple, they are easy to set up to send and receive crypto payments quickly. Implementing a blockchain payment system requires professional expertise and supervision to be completed successfully, so hiring an established blockchain development company is always recommended for the optimal implementation of such a payment system.
Conclusion
Blockchain technology has revolutionized the payments industry and continues to bring innovations. Transactions distributed over network nodes of computers provide very secure payments without the risk of data manipulation or manipulation by third parties. Enterprises that effectively address challenges associated with traditional payment systems and form dedicated teams for blockchain implementation in their businesses can quickly realize its multiple advantages and reap its many rewards.
More organizations are turning to blockchain for business use to accelerate processes, reduce payment processing fees, add extra protection against potential business risks and address growth opportunities. Both public-private entities recognize how decentralization can transform their growth plans into mainstream strategies.
