Blockchain payments are becoming more popular. In 2023, the adoption of blockchain payments like cryptocurrencies reached a new height of 420 million users globally, per a Triple-A report. This number is an 800 percent increase compared to the previous year.
Blockchain is a decentralised digital ledger that records and verifies transactions through a network of computers. Unlike traditional payment methods, blockchain payments occur directly between parties. Each transaction is stored in a ‘block’ linked to previous blocks, forming a chronological chain.
The technology provides enhanced security and speed for cross-border payments. International payments used to be a complex process due to the different currencies and banking systems involved. However, the technology can simplify transaction processes significantly.
Speed and efficiency
Blockchain payments revolutionised traditional cross-border payments by enabling faster and more efficient transfers.
The decentralised network used in blockchain eliminates the need for a central authority. It simplifies the verification for transactions and avoids process delays. The technology also allows direct peer-to-peer transactions with no extra parties.
Thus, settlement speeds are much faster than in traditional banking systems. Unlike traditional ones, blockchain payments can be made within minutes instead of lengthy periods of days.
Cost reduction
Blockchain cross-border transactions come with significantly lower transaction fees than traditional systems. This is mainly due to the absence of intermediaries.
It also allows users to get lower currency fees than traditional modes. Moreover, cryptocurrency options offer no currency fees at all.
Security enhancements with blockchain
The security systems used by traditional banks involve third parties, which often means heightened vulnerability. The additional parties might experience operational issues that can affect the banks. Each third-party involvement adds possible risks to the main payment system. Blockchain payments remove the need for additional parties and enhance security with better transparency.
They use a decentralised network where multiple network participants verify and record each transaction. This makes it nearly impossible for system manipulation incidents to happen.
The technology also allows the use of smart contracts. These are digital contracts stored in a blockchain that automatically enforce themselves when specific conditions are met. These AI-powered contracts reduce reliance on transaction intermediaries and avoid potential fraud or errors. This contrasts with traditional systems, which require third parties to safeguard information
Case studies
Some financial institutions have already used blockchain for cross-border payments. Ripple is a prime example of blockchain technology’s effect on cross-border transactions. Its native cryptocurrency, XRP, plays an important role in this. Cryptocurrency can aid faster and cheaper international transactions. Moreover, its worldwide network of financial institutions allows a near-instantaneous settlement.
In the trade finance sector, cross-border payments play an important role. Platforms like Marco Polo have included blockchain payment options in their services.This simplifies and better secures trade financing transactions.
E-commerce platforms also included these payment options, like Bitcoin, to increase global sales. One of the online platforms that accept Bitcoin payments is CheapAir, an online travel agency. Another one is NewEgg, an e-commerce platform for computer parts and consumer electronics.
Future prospects for blockchain payment systems
Blockchain technology is still evolving and more companies will likely adopt blockchain payment systems. The rising need for faster and more secure global payments is expected to drive the broader adoption of blockchain payments.
Among the future trends that involve blockchain payments for cross-border transactions is the rise of central bank digital currencies (CBDCs). CDBCs are a digital version of national currency that is more efficient for cross-border transactions.
More blockchain-based platforms will emerge and further streamline international trade finance processes. These platforms will facilitate end-to-end trade finance, including documentation, tracking, and payment.
The security for blockchain transactions will continue to develop, as zero-knowledge proofs and advanced encryption are increasingly used.
Partnerships with traditional financial institutions and global payment networks will expand. This can further enhance the accessibility and adoption of blockchain payments.
- Blockchain
