Role of Blockchain Technology in Secured Payments

What is a Blockchain?

 

A blockchain refers to a peer-to-peer network of computers known as nodes that both participate and monitor asset transfers. Every transfer is recorded on each node, developing a platform of trust based on several identical copies of the ledger.

 

Blockchain technology is immensely crucial as it removes the need for a centralized third party, improving efficiency, security and reliability for numerous industries especially in marketing, legal and payments. 

 

This leads to the creation of a public ledger that can be traced and recorded by all stakeholders. It found its origin in cryptocurrencies like Bitcoin, enabling the exchange of the currency, recording each blockchain money transfer into a publicly-accessible digital ledger.

 

Blockchain technology enables users to get public access to money transfers that would otherwise be private so that any modifications are monitored by all users, which results in further security measures.

 

Some well-known users of public blockchains are Ethereum, Ripple, and Bitcoin.

 

Why is Blockchain used to Transfer Money?

 

When blockchain arrived in 2009, it never looked back. It is being constantly used in a multitude of fields but it is still most widely utilized for money transfers and transactions.

 

This needs to be kept in mind that cryptocurrencies are not the only funds that can be transferred via a distributed ledger. This technology has witnessed a number of innovations for achieving its fullest extent.

 

Though blockchain was initially developed for the purpose of facilitating fast, safe and secure money transfers, it now has countless other applications as well. 

 

Safety while Using Blockchain Technology

 

While the accessibility of the ledger may seem like a breach of privacy to some, actually it leads to the constant monitoring of money transfer by all participating parties (nodes). This helps in building a tamper-proof and immutable platform of trust.

 

In case, someone tampers with the information in a blockchain, each copy of the ledger on the majority of participating computer nodes would need to change the same piece of information. 

 

Consequently, a 51% attack is the only way to effectively change the information contained with a blockchain. However, the proof-of-work consensus mechanism used by public blockchains makes this type of attack next to impossible (Source). 

 

Additionally, blockchain money transfers can be sent and received in any country that allows the technology to exist. Blockchain payments come without fees when we talk about sending or receiving blockchain money transfers. However, foreign exchange or transaction fees can be charged depending on the company or platform the funds are transferred to.

 

Also Read | How can Blockchain be used in Financial Services?

 

Benefits of Using Blockchain in Payment

 

Blockchain technology has brought a massive impact on payment solutions. It offers immense benefits detailed as below-

 

1. Firstly, blockchain technology offers a highly secure platform for transaction processes. Using blockchain for payment processing results in new opportunities for both the consumer and the company.

 

2. The cryptographic hash function ensures that no one can hack into the system and alter its data. In this way, blockchain safeguards the network from both outside and inside attacks.

 

3. As the blockchain payment platform follows a distributed natured network leaving no central governing authority.  This ensures minimum control of central authorities over the systems. As a result, consumers can finally trust the system to offer the full security they deserve.

 

Also Read | Impact of Blockchain and Cryptocurrency on Gambling Industry

 

Use Cases of Blockchain in the Payment Sector

 

Blockchain in the payment sector can offer a lot of use cases. Let’s dive deep to understand some of the most effective among these. 

 

• Digital Identity Verification

 

We all know how identity verification is a lengthy process also without 100% security. A single verification requires a lot of time. 

 

Also, a lot of consumers are sceptical about sharing their information for digital verification. Blockchain technology-based payment methods enable automated processes of identity verification.

 

The overall process of verification is accelerating compared to the traditional ones. Users can easily upload all their documents, and it will verify them and create a digital identity for them. 

 

• Automated Know Your Customer (KYC) Processes

 

The KYC process usually involves a lot of official documentation and a long processing time to verify it.

 

In case, a customer decides to use another payment provider then he/she has to do the same process all over again because there is no way for the banks to use the information from other banks to verify it, making the entire process repetitive. 

 

However, the good news is that with blockchain-based payment methods, a consumer will have to go through the process only once. All the processes will be automated making blockchain a sharable and secured type of ledger system. In this way, banks can easily communicate with each other and use the KYC data from one bank to another.

 

• Faster Cross-Border Transactions

 

All of us know that cross-border payment takes a lot of time to process.

 

As per the article, while users are not using a banking channel to process the transactions, it can still take up to 6 days for completing the procedures, affecting enterprise businesses quite negatively.

 

However, with blockchain-based payment methods, we get a faster transaction. We can process a transaction within seconds instead of days. This feature saves so much time and boosts the efficiency of countless businesses.

 

• Peer to Peer (P2P) Transfers

 

Peer-to-peer transfers form another major use case of blockchain technology for payment solutions. Blockchain technology helps to transact directly with another user. There is no need to go through a middleman or a central authority to do that.

 

On top of that, there are no limitations to blockchain technology. Therefore,  anyone can easily transact money from anywhere around the globe.

 

• Reduced Processing Fees

 

Both consumers and businesses face trouble in the form of processing fees. As seen in most cases,  processing fees always increase every year, and also, the variations of processing fees are quite complicated. 

 

It becomes really hard to keep track of the processing fees and the total value they would cost in the long run.

 

Blockchain-based payment platforms eliminate the need for any middleman. This is a significant measure to reduce the number of transaction fees for both the businesses and the consumers.

 

Also Read | All about Blockchain Interoperability in 2022

 

Ending Note

 

We have seen how blockchain technology is revolutionizing industries right from finance to agriculture. 

 

All businesses are challenged to integrate this technology into their operations, as explained by this article. By using blockchain-based billing systems, the business actually offers a lot of benefits for companies and their customer base.

 

If we consider the recent financial frauds and crises happening all over the world, blockchain technology offers an extra level of security for small business payments. This proves to be in the best interest of small businesses to secure their funds.

Next Read | Blockchain Mining: Types and Uses